There is now the option for individuals to contribute to the New Pension Scheme (NPS) that is offered by the government to enable them to plan for their future.
By Arnav Pandya
There is now the option for individuals to contribute to the New Pension Scheme (NPS) that is offered by the government to enable them to plan for their future. This will ensure that there is some contribution that is going towards long term investments so that the future especially during old age is taken care of. Earlier the fund was meant for contributions only for government employees and hence this was a restriction. Now with the fund being thrown open for other investors and with several fund managers managing the funds there is adequate choice available so there is a need to take a closer look at the various conditions to see how they actually shape up.
As far as the question of tax benefit is concerned the first condition that has to be fulfilled is that there has to be a contribution by the individual to a notified scheme and in this regard the NPS has been notified so this will make it eligible for the investment. The other condition has to be that the individual has to pay or deposit a sum into the account under this scheme so there has to be care to ensure that the amount is actually paid or deposited during the year otherwise the benefit might not be available.
When it comes to a government employee the contribution that will be eligible for the deduction under this specific section has to be not more than 10 per cent of the salary of the individual. This acts as a restraining factor in the sense that this becomes a limit that has to be followed so there has to be adequate care taken to ensure that this is not breached. When it comes to the individual who is not a government employee there is also a limit that would be applicable and this is that the contribution should not be more than 10 per cent of the gross total income of the individual.
Gross total income is a figure that the individual might not be aware of but in simple terms this is the total income that is calculated from all the sources before taking any deductions (under Chapter VI A) like Section 80C for specified investments or under Section 80D for medical insurance premium and so on. The total amount of the contribution should not be more than 10 per cent of this otherwise the additional amount will not qualify for the tax benefit.
Just because there is a sum that is less than 10 per cent of the gross total income it will not mean that the entire amount will be available as a deduction as there is a further restriction that is present in this area. The sum total of the investments under this section (Section 80CCD) plus the eligible investments under Section 80C plus the premium on pension products on Section 80CCC should not exceed Rs 1 lakh. This means that if there are other benefits that are claimed in other areas then the benefit cannot be claimed under this specific area. This puts an overall limit on the deduction and this need to be carefully considered as this can result in a position where the extra benefits that have been thought of would not actually materialise.
The overall planning has to be done in such a manner that the goal of providing for the latter years in the form of accumulation of amounts that would be useful for pension is achieved. At the same time if there are various tax benefits that can be claimed then this should not be let go because of the fact that it would be easier for the individual to claim the benefits.
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