NPS Calculator: Discover How the National Pension Plan Can Reduce Your Taxes

The National Pension System (NPS) is a long-term retirement plan that may help you save a substantial amount of money on taxes in addition to assisting you in building a substantial fund. You are still eligible for NPS tax savings even if you choose the prior tax system. The long-term retirement plan was created in collaboration with the Central Government and the Pension Fund Regulatory and Development Authority (PFRDA). With the exception of members of the armed forces, workers in the public, private, and unorganized sectors are eligible for this pension plan.

The following tax advantages are available to those who make contributions to the National Pension System:

* Section 80C of the Income Tax Act of 1961 exempts NPS payments up to Rs 1.50 lakh from taxation.

* Holders of Tier-1 NPS accounts are eligible for an extra Rs 50,000 deduction under Section 80CCD (1B). As a result, the whole Rs 2 lakh in NPS contributions is tax free.

* Now, NPS payments may help you reduce your tax bill to zero if your annual gross income is Rs 10 lakh. NPS contributions by themselves are inadequate. You will certainly get a great deal from them, but you have to take extra deductions.

Here’s how to pay no taxes at all:

Exemption from House Rent Allowance (HRA)

The HRA is ascertained in accordance with Section 10 (13A) as follows: The real HRA has been supplied by the employer. those who live in metropolitan areas get 50% of their basic pay, while those who don’t live in metropolitan areas get 40%. You may simply claim Rs 1 lakh as an HRA if your yearly salary is Rs 10 lakh. Your taxable income would be Rs 7 lakh after Rs 2 lakh in NPS deductions and Rs 1 lakh in HRA claims.

An extra Rs 1.25 lakh may be written off in reimbursement applications for costs associated with entertainment, travel, phone, and stationery. You may include them in your compensation after speaking with the human resources department of your organization. The majority of offices are set up to deal with these applications for reimbursement. Your net income after that deduction is still Rs 5,75,000 taxable.

Premiums for Health Insurance

You may deduct Rs 25,000 from your health insurance premiums (up to Rs 50,000 if the insured is a senior) under Section 80 (D). Parents, children, spouses, and individuals may all deduct expenses. Once the health insurance premiums are claimed, the taxable income is Rs 5,50,000.

Refund of taxes under Section 87A

For the fiscal year 2023–2024, you may claim a maximum refund of Rs 12,500 under Section 87A of the Income-Tax Act. Your remaining taxable income is Rs 5,37,500 after this deduction.

A standard deduction of Rs 50,000 is also provided for under Section 16 (1a). Your total taxable income would be Rs 4,87,500 after that deduction.

Any income under Rs 5 lakh was subject to 5% income tax under the former tax system. But thereafter, you get a tax refund, which takes the tax on your income down to zero.