As of August 2020, contributions made to the National Pension Scheme are eligible for additional tax deduction up to _____.
Rs. 50,000
Understanding National Pension Scheme (NPS) Tax Benefits
The question asks about the additional tax deduction available for contributions made to the National Pension Scheme (NPS) as of August 2020. NPS is a popular retirement savings scheme that offers tax benefits to encourage long-term investment for retirement.
Income tax laws provide various sections under which contributions to NPS can be claimed for tax deduction. The primary sections are:
- Section 80C: This is a common section for various investments like PPF, EPF, life insurance premiums, etc. Contributions to NPS are also eligible for deduction under Section 80C, subject to the overall limit of Rs. 1.5 lakh under this section. This is typically claimed under Section 80CCD(1).
- Section 80CCD(1B): This section provides an additional tax deduction specifically for contributions made to NPS. This deduction is over and above the limit available under Section 80C/80CCD(1).
- Section 80CCD(2): This section is for the employer's contribution to the employee's NPS account. It is deductible up to 10% of the employee's salary (Basic + DA). This deduction is also over and above the limits under Section 80C and 80CCD(1B).
Additional Tax Deduction under Section 80CCD(1B)
As per Section 80CCD(1B) of the Income Tax Act, an individual who contributes to the National Pension Scheme can claim an additional tax deduction of up to Rs. 50,000. This deduction is available for the individual's own contribution to their Tier-I NPS account.
This specific deduction of Rs. 50,000 under Section 80CCD(1B) is a key benefit of investing in NPS, as it allows individuals to claim a higher overall tax deduction than what is possible through just Section 80C/80CCD(1). The total deduction an individual can potentially claim for their own contribution to NPS is Rs. 1.5 lakh under Section 80CCD(1) (part of 80C limit) plus an additional Rs. 50,000 under Section 80CCD(1B), making it a total of up to Rs. 2 lakh.
Therefore, the contributions made to the National Pension Scheme are eligible for an additional tax deduction up to Rs. 50,000 under Section 80CCD(1B).
Let's look at the options provided:
- Rs. 62,000
- Rs. 40,000
- Rs. 65,000
- Rs. 50,000
Based on the provisions of Section 80CCD(1B), the maximum additional tax deduction for NPS contribution is Rs. 50,000. This is a significant benefit for individuals planning their retirement and looking for tax-saving options.
The Rs. 50,000 limit for the NPS Tax Deduction under Section 80CCD(1B) has been a standard feature for several years and was applicable as of August 2020 as well.
Important Questions from Income-tax
Tax audit is compulsory in the case of a person carrying on profession and whose gross receipts exceeds which one of the following?
Which are the appropriate tax planning perspectives in case of shutdown or continued decision under the Income Tax Act, of 1961?
A. Business loss and unabsorbed depreciation can be carried forward and set off against profit and gain.
B. The loss-making company and profit-making company may merge to avail of the tax benefit
C. Tax benefit of deduction u/s 33 AB and 115 VT may be withdrawn and liable to tax for the year in which the business is discontinued.
D. The condition of section 80 IB / 80 IC of the Act, a deduction is allowed for such undertaking
E. If a person has more than one business, the loss-making business may not be discontinued.
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