Unlocking Tax Efficiency with a NPS Tier-1 Account

The National Pension System is an important lifeline for individuals who want to secure a comfortable life after they retire. Individuals who wish to secure this retirement fund can contribute to their NPS while they are still working and withdraw the amount once they turn 60. However, did you know that the National Pension System also offers an opportunity to manage your taxes effectively? 


How NPS Offers Tax Efficiency 

According to Section 80C of the Income Tax Act, you can reduce your yearly income’s total deductible tax amount by Rs. 1,50,000. The provision of Section 80CCD (1B) allows for tax deductions of additional Rs. 50,000. Therefore, if you decide to secure your future with a national pension scheme investment, the tax deductions ensure that you do not suffer any short-term financial burdens. It also ensures that your money is being put to good use, as it generates income via the interest rate.

The NPS scheme also offers tax benefits in the long run. When an individual reaches 60, and their investment reaches maturity, 60% of the total fund’s value is non-taxable. This means that a major portion of your retirement fund is tax-free.

 Who Can Avail of These Tax Benefits?

The NPS is a pension scheme open to all Indian citizens. All you have to do is ensure that you fit the eligibility criteria. If it is your first time opening an account, then you must open an NPS Tier 1 account. Under this account, individuals automatically become eligible for income tax benefits. Here are some of the requirements necessary to open an account and access NPS Tier 1 income tax benefits. 

  • Indian Citizenship
  • Open to individuals better 18-70 years old 

Getting Started

As can be seen, the eligibility criteria to open a NPS Tier 1 account is extremely simple. If you are keen to begin investing in the National Pension System, you can use an NPS calculator to help determine your monthly/annual investments and the value of your fund value it reaches maturity. Using the calculator will allow you to accurately construct an investment plan that suits your short-term financial management and retirement planning. 

Conclusion

If you have decided to start planning for your post-retirement future, then the National Pension Scheme is a strong investment option you can consider. The tax benefits of the National Pension System help account holders access tax deductions of up to Rs. 2,00,000 every year. It also allows individuals to access tax-free 60% of their fund value when the investment reaches maturity. These tax benefits can only be availed of by NPS Tier-1 account holders. So, if you plan to utilise the NPS scheme for its tax breaks, ensure you are using an NPS Tier-1 account. 

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