How to avail income tax benefits under National Pension System

The National Pension System (NPS), is a government-sponsored retirement planning instrument that gives investors the option to set preferred allocation to different asset classes. It offers two kinds of accounts -- Tier 1 and Tier 2 -- for instruments including government bonds, equity market and corporate debt.

While Tier 1 NPS account offers income tax benefits, there are no such benefits on funds parked in Tier 2 account. Tier 2 is known as investment account.

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Any individual who is subscriber of NPS can claim tax deduction up to 10 percent of gross income with in the overall ceiling of Rs 1.5 lakh.

An additional deduction for investment up to Rs 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs 1.5 lakh available under section 80C of Income Tax Act.

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Additional tax benefit is available for subscribers under corporate sector. Employer's NPS contribution (for the benefit of employee) up to 10 percent of salary, is deductible from taxable income, without any monetary limit.

Employer’s contribution towards NPS up to 10 percent of salary can be deducted as 'business expense' from profit and loss account in case of corporates.

An existing subscriber can approach any Point of Presence - Service Providers (POP-SP) or alternatively can visit the e-NPS website -- enps.nsdl.com for making additional contribution to the Tier I account.