National Pension System tax benefit: Do you know cut-off dates for NPS contribution?

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Published: February 19, 2020 4:18 PM

To avail additional tax benefits up to Rs 50,000 on voluntary contribution to NPS Tier 1 Account – over and above the 80C limit of Rs 1.5 lakh, you can't wait till March 31 to make your contribution.

income tax, tax-saving investments, National Pension System, NPS, insurance, PPF, cut-off date for NPS contribution, NPS fund manager, Point of Presence, POP, NPS architecture, NPS tax receipt, 80C, 80CCD(1B)You may get the NPS tax receipt delivered at your registered email address.

To avail tax benefits through tax-saving investments, a person needs to invest by March 31 of the current financial year. For example, you may avail 80C benefits for the financial year 2019-20, only if you deposit money in your PPF account by March 31, 2020, pay your insurance premium by that date.

The date on the receipt you get for such payments would decide if you are eligible to avail tax benefits or not.

However, to avail the additional tax benefits up to Rs 50,000 on voluntary contribution to NPS Tier 1 Account – over and above the 80C limit of Rs 1.5 lakh, you can’t wait till March 31 to make your contribution as it takes some time for the money to get actually credited to the account of NPS fund manager.

So, for the financial year 2019-20, you may avail the additional tax benefit on voluntary contribution to NPS u/s 80CCD(1B) of the Income Tax Act only if the amount contributed gets credited to your account with NPS fund manager by March 31, 2020.

So, what would be the cut-off date to make the voluntary contribution, so that the amount gets credited to the NPS fund account by March 31, 2020?

“It takes 4-5 working days to channelise the funds from POP (Point of Presence) to actual credit to the fund account,” said Ankit Agarwal, MD Alankit Ltd, adding, “All the modes of payment are accepted i.e. cash, cheque and all modes of online transfers.”

Talking on the cut-off dates, Agarwal said, “Moreover, to get last moment tax benefit u/s 80CCD(1B), it is advisable to pay the contribution by March 25 to avoid any last moment hassle. For cheque payments, March 23 is a good date to pay.”

The time gap between paying the contribution amount and getting it credited to the fund account arises due to the structure of the National Pension System (NPS).

POPs are the first points of interaction of the NPS subscriber with the NPS architecture and the authorised branches of a POP, called Point of Presence Service Providers (POPSPs), act as collection points, where contributions are made. Apart from accepting contributions, POPSPs extend a number of customer services to NPS subscribers including requests for withdrawal from NPS.

The POPs transfer the amount collected to the account of the Trustee Bank, from where the fund then channelised to the account of the NPS fund managers, selected by respective subscribers to manage their pension funds.

So, the process of channelising funds from POPs to trustee bank to respective fund managers takes some time and for granting tax benefits, the date on which the amount gets credited in the fund account is taken into account.

You may get the NPS tax receipt delivered at your registered email address by the POP after around 3 working days from the date of transaction or may also log in to the website of POP to download it.

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