National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life.
Under the NPS, individual savings are pooled into a pension fund which is invested by PFRDA regulated professional fund managers into the diversified portfolios comprising of government bonds, bills, corporate debentures and shares. These contributions grow and accumulate over the years, depending on the returns earned on the investment made.
Salaried individual is eligible for tax deduction of up to 10% of Salary (Basic + Dearness Allowance) under section 80CCD (1) of Income Tax Act, 1961 within Rs.1.5 Lacs limit under section 80CCE. Additional investment of Rs.50,000 will be eligible for tax deduction under section 80CCD (1B) of Income Tax Act, 1961. This is over and above of Rs. 1.5 lacs limit under section 80CCE.
Employee is eligible to claim tax deduction on employer’s contribution upto 10% of salary (Basic + Dearness Allowance) under section 80CCD(2) of IT Act. This is over and above of Rs. 1.50 lac limit available under section 80CCE. There is no upper cap in term of absolute value on employer contribution.
Corporate can claim tax benefits for the amount contributed towards pension of employees. Up to 10% of the salary (basic and dearness allowance) of employers contribution can be deducted as ‘Business Expense’ from Corporates Profit & Loss Account as per section 36(1)(iv)(a) of IT Act.