New Pension Scheme : Any one can save additional tax

The Indian Income Tax Section 80 CCD (2) provides tax benefits over and above those offered by Sections 80C and 80 CCF.

Many taxpayers feel that the 1.2 lakh tax saving investment limit under the Indian income tax Section 80 C and 80 CCF is too low.

Under the new section,up to 10% of an employees basic salary put in the NPS (New Pension Scheme) is tax deductible.This means a person with an annual basic salary of 5 lakh (About Rs. 40,000 per month) can get an additional deduction of Rs. 50,000 if his employer puts this money on his behalf in the NPS. Assuming that he/she will have other incomes like bonus,special allowance, fixed deposit and Savings bank interest income,etc, which puts him/her in the 30% tax bracket,the NPS investment under Section 80 CCD(2) will reduce his tax liability by about Rs.15,000. 20% tax bracket -  Rs. 10,000,  10% tax bracket - Rs. 5,000.  

This clause was introduced in the previous budget by amending the rules regarding the deduction of contribution made on behalf of the employees.Till then,only the contribution towards a recognised provident fund, approved superannuation fund or gratuity fund were allowed as a business expense.

The only glitch with the new clause: this is one investment that a taxpayer can not make on his/her own. It is the employer who needs to deposit the amount on his behalf. For this,the company has to be convinced to include the benefit in its emolument package.

Despite the enormous tax-saving potential of the provision, very few corporate houses have offered the benefit to their employees.There is little awareness about this clause. Not many people believe that their employees can save more tax through this avenue, says Sudhir Kaushik,co-founder and CFO of tax filing portal Taxspanner.com.

Mr. Kaushik and his team,who advise companies and individuals on tax efficient strategies,are trying to convince companies to avail of this opportunity.

Wipro and HCL Tech are the large corporate houses that is contemplating the inclusion of Section 80 CCD (2) investment in its pay structure.
If your company does not offer you this benefit yet,its time to ask for it in your forthcoming appraisal.In the highest 30% tax bracket, it will enhance your increment by 3% of your basic salary.

All your employer needs to do is rejig the salary structure by reducing any of the fully taxable emoluments (special allowance, performance-linked bonus, etc) and adding this new head in your total CTC. 

This provision is also likely to inject new life into the moribund NPS. Till now,the scheme has received a less than lukewarm response from voluntary investors, largely because distributors are not willing to sell the low-commission pension product.

Last month, the Pension Fund Regulatory and Development Authority revised the 0.25% of the initial contribution. Subsequent transactions will also be charged at 0.25% of the amount invested.

The NPS is open to anyone between 18 and 55 years. Just as the PPF requires a minimum investment of  Rs. 500 a year, the tier-I NPS account mandates a minimum annual contribution of Rs. 6,000. However,unlike the PPF balance,this amount can not be withdrawn from the NPS till the age of 60. Even at that age, the investor will have to use at least 40% of the corpus to purchase a life annuity, while the balance can be withdrawn.

The tax benefits under Section 80 C and 80 CCD(2) are available only on investments in tier-I accounts. However,if you have a tier-I account, you can also open a tier-II NPS account. Contributions to the latter can be withdrawn without any restriction charges upwards to make the scheme more lucrative for distributors. So,the first-time subscribers will now be charged Rs. 100 for registration and a transaction charge.

Src : ET

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