Everything You Need To Know About Tax Saver via NPS

Since the Finance Minister offered additional tax benefits for contributing to the National Pension System (NPS), the number of subscribers has increased significantly. The NPS is a defined voluntary retirement scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

Under this system, subscribers must open a Tier I account and invest at least INR 6,000 per year until the age of 60 years. They may opt to invest additional money in a Tier II account. On maturity, investors are allowed to withdraw up to 60% of the accumulated amount as a lump sum. The balance must compulsorily be converted to an annuity plan to earn regular income during the post-retirement years.

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Every investor receives a Permanent Retirement Account Number (PRAN) on successful application. In case, an individual does not receive this unique number, he or she may check the PRAN status on the regulator’s site or with the Point of Presence (POP). POP is a PFRDA- approved institution where the NPS account is opened.

Tax savings with NPS

Section 80CCD (1)

Subscribers are able to enjoy tax deductions of up to INR 1.5 lacs under section 80CCD (1) of the Income Tax (IT) Act. This section is applicable for availing tax benefits for investments made in a government-notified pension plan. In addition to the NPS the plans include Public Provident Fund (PPF) and insurance policies. The limit under this section was enhanced from INR 1 lac to INR 1.5 lacs, which provides investors the opportunity to enjoy additional tax savings.
The cap for employees under this section is calculated as 10% of basic salary plus dearness allowance. Self-employed subscribers may avail tax benefits under this section for an amount capped at 10% of their gross income.

Section 80CCD (1B)

In the previous year’s budget, the Finance Minister offered a boost to NPS by announcing an additional tax benefit for contributions made to this defined plan. Section 80CCD (1B) of the IT Act offers investors the chance to avail additional tax deductions of up to INR 50,000 per year on their NPS contributions.

The combined NPS tax benefits are advantageous for taxpayers in the highest (30%) bracket. They can save an additional INR 15,450 in taxes [under section 80CCD (1B)] by contributing INR 50,000 to their NPS account.

Section 80CCD (2)

Contributions made by the employers in their employees’ NPS accounts are eligible for tax benefits under section 80CCD (2) of the IT Act. This amount is capped at 10% of the basic salary plus dearness allowance.

Maturity

Since its launch, NPS has been categorized as an Exempt-Exempt-Taxable (EET) scheme. This means the annual contributions made to this scheme and the interest earned are both tax-free. However, investors have to pay taxes as per their tax slabs at the time of maturity.

In Budget 2016, the Finance Minister has relaxed the tax on maturity. As per the revised regulations, 40% of the lump sum withdrawal on maturity is now tax-free. If the subscriber opts to withdraw more than 40% of the accumulated corpus, the difference is taxable at the prevailing tax rate. The amount converted to an annuity is tax-free; however, the income through this plan is taxable in the year it is received. The annuity income can be calculated using a pension calculator.

The PFRDA in October 2015 has further provided benefits for NPS subscribers. Subscribers may now withdraw the lump sum amount in 10 annual installments until the age of 70 years. Using this modification wisely may benefit subscribers in further tax savings.

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Easiest Process to Verify Your Income Tax Returns

The worst thing about filing your Income Tax return is downloading ample of forms, computing the tax liability, savings, investments, deductions, and several other formalities. This is not it, as the main part is when you have to verify it and all your hard work goes into vain if you do not do so.

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In this article, we will discuss the easiest way of verifying your Income Tax Return.

How to e-verify your Income Tax Return?

Congratulations as you now live in the digital age. Nowadays, you can go for electronic verification. Firstly, you need to login to incometaxindia.gov.in/ and go to the page called ‘E-Verify Return’. This is done after filing as well as submitting your ITR form. It offers you two ways so as to validate your ITR digitally:

  • Connect your Aadhar Card and your PAN number. Then create an OTP (one time password) which will be sent to the mobile number you registered. Your e-filing will be validated after entering this OTP.
  • The next step is to generate an electronic verification code (EVC), which you will get on the mobile number or email ID you registered. This electronic verification code is used so as to verify your tax saving investments return.
  • This method is for those people who pay taxes and file returns or if their total income is above Rs 500,000.
  • Now paying taxes is not a hectic tax and the credit goes to the IT department that has made it easy for tax payers to clear all the taxes levied on them. This is because they have made a digital process to verify ITR rather than sending a signed copy of ITR-V all the way to Bangalore CPC.

It is but obvious that verifying tax returns can be done quite easily and swiftly when done electronically. For this, you need to link your Personal Identification number and your Adhar Card.

Aadhaar number is a 12 digit number that uniquely identifies an individual and this is issued by Unique Identification Authority of India which is one of the organisations under Government of India. This number works as an identity proof and address proof, across the country.

Following steps will help you do it:

Firstly, go income tax e-filing portal and Login

  • After you have logged-in, a pop-up will appear in which you will be asked to link your Aadhaar number. It might be possible that it does not appear, then in such cases go to the profile settings and go to Link Aadhaar to PAN and click on it.
  • Before entering the Aadhaar number make sure you verify your name, date of birth, gender and other details. Also, make sure that it matches with the details of your PAN card.
  • Once you have cross-checked and verified the documents, enter your radar number as well as the link. The aadhar number will be linked with your PAN card only if details that you have mentioned matches to each other.

The main benefit of linking the unique number of your adhaar card is that doing so will help you to e-verify your income tax return.

You will get all the notifications and updates on your mobile phones if you have registered your mobile number with your Aadhar account.

Wrapping it Up!

Paying income tax is one of the most hectic task and on the top of it filing an Income tax return is much more hectic. Lengthy paper works and hectic verification process might take a lot of time to work to complete the process. Thus, people find it quite hectic to complete the process and at the time were reluctant to file it. This is no longer a hassle now as people can do it through online portals. Digitization of all these government officials has made verification process easier than the manual one.

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