Sunday 19 February 2017

New pension scheme (NPS) contribution corrected tax calculation method

Dear Viewers
New pension scheme subscribers attention towards tax exemption.

As you are aware that at present 10% of (basic pay + DA) is deducted from your pay and subscribed to pension fund regulatory and same amount is credited by government to your NPS account. If your total contribution towards CPF (NPS) is Rs. 35000/- in a financial year then Rs. 35000/- will be credited to your NPS account by your employer i.e. by government. 

These are common features known to everyone but what about tax calculation of this amount that is the main fact.

There is no tax UpTo Rs. 250000/- At present the savings limit is Rs 150000/- under section 80(c), 80ccc, 80ccd(1) ( Sum of Savings in PPF, SSA, 5YR TD, NSC, NPS, PLI, LIC etc. But limited to Rs. 150000/-) Contribution made by you towards NPS are covered under section 80CCD(1) and this amount is already included in your total annual income as it is deducted from basic pay and DA same as GPF and this amount actually transmitted to pension fund regulatory. The amount credited to your NPS account by government equal to your subscribed amount is covered under section 80CCD(2) as it is credited to your account this amount added to your annual income. But the fact is that contribution by government to your NPS account 80CCD (2) is fully exempted under income tax act 1961. Your employer will show NPS contribution by government to your account as your income and then deduct it under section 80CCD (2) in form 16 then calculate tax on remaining amount i.e. if your annual NPS contribution is Rs. 35000/- then you have to pay no tax on that amount and this will also be included in your savings 80(C). But at present in many divisions it is came to notice that account branch is showing the NPS contribution (by government​ to your account) to your income but not deducting it under section 80CCD (2) due to which you have to pay tax on NPS contribution also which an irregular loss to government employee. As you have to pay tax on total NPS amount corpus after retirement or quitting service.

NPS Contribution made by employee called 80CCD (1) [deducted from basic pay and da same as GPF so not added separately in your annual income] but included in your savings limited to 150000/-

NPS Contribution made by employer (govt) to your NPS account called 80CCD (2) [added separately to your annual income] but exempted under income tax act 1961.

So after deducting the amount 80CCD (2) from your total annual taxable income tax will be calculated

SO It is quite clear that you have to pay no tax on NPS contribution whether by your side or employer ( govt) side.

After 7th CPC many employees become income tax payer so to save tax keep these facts in mind.

Once your employer prepare form 16 and unfortunately this benefit not included in form 16 then you will not be eligible for this benefit.

So raise your voice and request account branch to deduct the NPS contribution 80CCD (2) from your total annual income in form 16 then calculate income tax. If your side total annual contribution towards NPS is Rs. 35000/- then you can save tax upto Rs. 3500/- 

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