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NPS Tax Benefits:
NPS tax benefits are available through 3 sections – 80CCD (1), 80CCD (2) and 80CCD (1B). We discuss each below:
1. Section 80CCD (1)
Employee contribution up to 10%of basic salary and dearness allowance (DA) up to 1.5 lakh is eligible for tax deduction. [This contribution along with Sec 80C has 1.5 Lakh investment limit for tax deduction]. Self-employed can also claim this tax benefit. However the limit is 10% of their annual income up to maximum of Rs 1.5 Lakhs.
2. Section 80CCD (1B)Additional exemption up to Rs 50,000 in NPS is eligible for income tax deduction. This was introduced in Budget 2015.
3. Section 80CCD (2)
Employer’s contribution up to 10% of basic plus DAis eligible for deduction under this section above the Rs 1.5 lakh limit in Sec 80CCD(1). This is also beneficial for employer as it can claim tax benefit for its contribution by showing it as business expense in the profit and loss account. Self-employed cannot claim this tax benefit.