Tax Saving Tips: Everyone needs financial stability and a regular income after retirement. By adopting the right savings and investments during your job, you can build a strong pension for the future. In this regard, the National Pension System (NPS) is an excellent government scheme that provides investors with a regular pension after retirement. This scheme is not only safe but also highly beneficial in terms of tax savings. You can start it with just ₹1,000.

What is the National Pension System (NPS)?

NPS is a government pension scheme administered by the Pension Fund Regulatory and Development Authority (PFRDA). This scheme provides lifelong security to investors after retirement. Investors regularly deposit a fixed portion of their salary or income, and receive this money back as a pension upon retirement.

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Types of NPS Accounts

There are two types of accounts under the NPS, Tier 1 and Tier 2. Tier 1 is a pension account in which the deposited amount cannot be withdrawn before retirement. This account also offers tax benefits. Tier 2 is a voluntary savings account, allowing you to withdraw the investment amount as needed.

How to Save Lakhs of Rupees in Tax

NPS investments offer several tax exemption options from the government. Under Section 80CCE of the Income Tax Act, investors can claim a tax exemption of up to ₹1.5 lakh. Additionally, under Section 80CCD(1), individuals can save up to 10 percent of their total income.

Investors who invest more than ₹50,000 can also avail an additional tax exemption of ₹50,000 under Section 80CCD(1B). This means that by investing in NPS, a person can save up to ₹2 lakh in tax. Government employees can claim a tax deduction of up to 14% based on their contributions.

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Low Risk and Better Returns

The amount invested in NPS is divided across different asset classes such as equities, corporate bonds, and government securities. This diversified investment strategy reduces the risk level. However, market fluctuations can impact returns. This scheme is known to provide better returns over long-term investments.

Account Closing Conditions

Certain conditions have been set for closing an NPS account. The lock-in period under this scheme ranges from 5 to 10 years, meaning investors cannot withdraw their funds for a minimum of 5 years. In the event of retirement or upon reaching the age of 60, investors can close the account and receive a pension or lump sum.