If you have exhausted the limit of Section 80C, an additional investment of Rs 50000 in NPS can help you save tax and get a regular pension.
The tax savings season for the financial year (FY) 2019-20 is coming to an end. And, if you have already exhausted the section 80C limit of Rs 1.5 lakh, there’s another tax saving option that can help you save additional tax. Under 80CCD(1B), your contributions up to Rs 50,000 towards NPS is deductible from your total income. If you already have an NPS account or even if you open it now, the contributions can help you save additional tax before March-end. Not just tax, a regular pension on NPS maturity amount can be calculated using the NPS maturity calculator.
The deduction under Section 80CCD(1B) is over and above the deduction availed under Section 80CCD(1). If you have exhausted Section 80CCD(1) limit, you can invest additional up to Rs 50,000 in NPS and claim tax benefit under Section 80CCD(1B).
But, as an NPS subscriber, one cannot claim tax benefit for the same amount under both the sections. The umbrella section is Section 80CCE which is an aggregate amount of deduction under sections 80C, 80CCC and Section 80CCD(1) and is capped at Rs.1. 5 lakh.
Now, if you want to put Rs 50,000 in NPS for additional deduction, let us see how much NPS corpus will be there at age 60 and how much will be the approximate pension.
Here, we work out numbers for someone who is 30 years of age, invests Rs 4167 per month (Rs 50,000 annually) for 30 years in NPS.
According to the NPS calculator, assuming an annualised return of 10 per cent, the NPS maturity amount after 30 years is approximately Rs 1 crore. ( Rs 94.97 lakh to be precise)
As per the NPS maturity rules, at age 60, one can withdraw up to 60 per cent of corpus. On the balance 40 per cent of NPS maturity amount, one gets pension or annuity. The 60 per cent of NPS maturity amount is tax-free for the subscriber.
NPS scheme calculation example
- NPS contribution – Rs 4167 per month (Rs 50000 yearly)
- Total NPS contribution paid over 30 years – Rs 15 lakh
- At age 60, total NPS maturity amount – Rs 94.97 lakh
- Maximum tax-free withdrawal allowed – Rs 57 lakh (60 per cent of corpus)
- Amount available for pension – Rs 38 lakh (40 per cent of corpus)
- NPS monthly pension from age 60 – Rs 19000 ( At assumed rate of 6 per cent for an annuity)
So, by investing approximately Rs 5,000 every month, one can get a monthly pension of about Rs 19,000 after 30 years, assuming a return of about 10 per cent per annum.
The actual amount of monthly pension will depend on the rate of return generated on one’s contribution, age of the NPS subscriber at the time of taking pension, number of years to maturity etc.
On the same amount as above, for 40 years old – Rs 6500 (approximately) will be the monthly pension from age 60.
On the same amount as above, for 35 years old – Rs 11000 (approximately) will be the monthly pension from age 60.
Taking advantage of the tax benefit should not be the only aim while investing in NPS. Before making an investment in NPS, know how the NPS scheme works, its features, lock-in period, fund options and the pension payout options. Take an informed call before you invest in NPS for your retirement needs.