How NPS benefits in saving tax?

Lots of our Friends in Workshops, Divisions/Depots are being deprived of Tax Benefits on New Pension System Contributions. For their benefits We are posting this article. We hope this will be beneficial for NPS Contributors.

For majority of taxpayers, Rs 1 lakh tax-saving investment limit under Section 80 C is the only one which can be availed to save tax. The reason is very few employers/employees are aware of additional tax benefit which can be availed under Section 80CCD (2).
Want to save more tax? Add NPS to your CTC

Under this section, up to 10 per cent of an employee’s basic salary put in the New Pension Scheme is tax deductible.

This means a person with an annual basic salary of Rs 5 lakh (nearly Rs 40,000 a month) can get an additional deduction of Rs 50,000 if her/his employer puts this money on her/his behalf in the NPS.

Assuming that s/he will have other income (bonus, special allowance, interest, etc), which puts her/him in the 30 per cent tax bracket, the NPS investment under Section 80CCD (2) will reduce her/his tax liability by almost Rs 15,000.

Let’s understand it with help of an example (see the adjacent table) that calculates tax-saving when annual basic salary is Rs 8 lakh and NPS contribution is Rs 80,000.

The table shows that Section 80CCD (2) helps cut an individual’s tax by 24,000. This is besides the tax one saves under Section 80CC.