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A comprehensive guide to the tax benefits of the National Pension Scheme

By Finserv MARKETS - Aug 1,2019
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A comprehensive guide to the tax benefits of the National Pension Scheme

Indians have long built their careers around securing a pension that will help them through their retirement years. Since decades, Indians have been choosing government jobs over corporate jobs for the security it provides in terms of pensions. This is because pensions act as a regular form of income even after retirement, ensuring that the family does not have to change its lifestyle habits.

However, these days, the best investment plan, and especially in terms of tax-saving investments, provides salaried individuals with the ability to earn a pension post-retirement. The National Pension Scheme (NPS) has emerged as one such voluntary defined contribution pension system in India. Launched in 2004, it is a government-sponsored pension scheme which allows salaried employees to regularly contribute to a pension account during their working life. This pension, now built into a corpus, is made available to the pensioner’s post their retirement.

Along with the security it offers post-retirement, NPS is also one of the best investment options since it acts as an investment at the time of paying contributions.

Available on Finserv MARKETS, NPS is a safe, low-risk investment option that is ideal for anyone with a low-risk appetite who wants to plan for a secure retired life. However, it is NPS’ appeal as a tax saving investment that really sets it aside from the crowd of other low-risk investment options available in the market with increasing frequency. NPS is the best investment option for those looking for a safe, steady way to invest and earn money for the long-term.

Tax benefits under NPS can be segregated on whether the subscriber is an individual, or is subscribing to NPS as part of a corporate.

Read on to learn more about the tax benefits offered under NPS.

1. Tax benefits to individuals:

Two kinds of tax benefits are available to individuals who subscribe to NPS. Firstly, the tax deduction of up to 10% of gross income is available to individual subscribers under Section 80CCD (1) within the overall ceiling of Rs. 1.5 lakh under Section 80 CCE.
Secondly, an additional tax deduction comes into play for investments up to Rs. 50,000. This is available exclusively to NPS subscribers investing up to Rs. 50,000 in NPS (Tier I account) under the subsection 80CCD (1B). This deduction will be over and above the deduction of Rs. 1.5 lakh that is available to subscribers under Section 80C of the Income Tax Act, 1961.

2. Tax benefits under the Corporate Sector:

For subscribers under the corporate sector, the additional tax benefit can be availed under Section 80CCD (2) of the Income Tax Act. The employer’s NPS contribution (for the employee’s benefit) is deductible from taxable income for up to 10% of salary, without any monetary limit. NPS is the best investment option for subscribers in the corporate sector since the employer’s contribution is also protected from excessive taxation.
For corporates, the benefit of having employees subscribe to NPS lies in the fact that their contribution towards NPS can be deducted as ‘Business Expense’ from their Profit and Loss account.

Subscribing to NPS is the best investment plan to ensure a secured retired life. Even availing of tax deductions is a simple enough process. The subscriber will only need to submit the Transaction Statement as proof of investment in order to avail the tax benefits.

Aside from the tax benefits offered to subscribers on the basis of whether they are individuals, or subscribing under the corporate sector; there are a host of benefits including:

1. Tax benefits on partial withdrawals:

Before attaining the age of 60, subscribers can partially withdraw from their NPS Tier I account for specified purposes. The amount that is withdrawn up to 25% of the subscriber’s contribution is exempt from tax.

2. Tax benefit on annuity purchase:

Amount invested for the purchase of annuity is completely exempt from tax. However, the annuity income that you receive in subsequent years will be subject to income tax.

3. Tax benefits available on lump sum withdrawal:

This benefit is available when the subscriber attains the age of 60. Up to 40% of the total corpus withdrawn in a lump sum is exempt from tax.

Benefits like this have helped NPS emerge as the best investment plan in India. It is one of the top tax-saving investments, owing to the host of benefits mentioned above.

Subscribing to the National Pension Scheme, via Finserv MARKETS, allows you to not only enjoy these tax exemptions but also puts forth a level of transparency unlike before. Since the process is completely paperless, there is no need to hold onto documents or receipts certifying the investment made. Additionally, the NPS account, as created through Finserv MARKETS, can be accessed from anywhere at all. Even if the subscriber changes jobs or moves cities, it is possible for them to track their NPS account on Finserv MARKETS.

“Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere”!


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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522