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NPS: Taxation with effect from April, 2012

The New Pension scheme got a big boost as a tax saving and investment option with the new

DTC regime, which will come in to effect from April, 2012.Earlier NPS was available to

government employees and employees of big companies only .If any other person want to go for

NPS, then the only option got is the Private pension schemes offered by insurance companies

which was a major hurdle for the NPS in reaching the common person. The new DTC regime has

overcome this hurdle by making NPS a common gateway. The new Tax implication on NPS will

bring in additional deduction benefits to the Employees and Employers

Benefits to the Employees

In view of the provisions of section 80CCE, the aggregate deduction under sections 80C,

80CCC and 80CCD is limited to 1 lakh rupees. The allowable deduction under section 80CCD

includes both the employees as well the employers contribution to the NPS. It is proposed to

amend section 80CCE so as to provide that the contribution made by the Central Government orany other employer to a pension scheme under section 80CCD shall be excluded from the limit

of one lakh rupees provided under section 80CCE.

Earlier in NPS 10% part is contributed by employer and 10% by employee where employers

contribution is added to the employees income and allowed as deduction under section 80 CCD

within the overall cap of 1 lakh, but here after with effect from april, 2012 the employers

contribution will be allowed as a deduction subject to 10% of salary over and above 1 lakh

deduction

Benefits to Employers

Earlier contribution made by an employer towards a recognised provident fund, an approved

superannuation fund or an approved gratuity fund is allowable as a deduction from business

income, subject to certain limits.

However, the contribution made by an employer to the NPS is not allowed as a deduction.It is,

therefore, proposed to amend section 36 so as to provide that any sum paid by the assessee as an

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employer by way of contribution towards a pension scheme, as referred to in section 80CCD on

account of an employee to the extent it does not exceed ten per cent. of the salary of the

employee in the previous year, shall be allowed as deduction in computing the income under the

head Profits and gains of business or profession

Overall it is a very good initiative by government to introduce a Pension Scheme which will givea common man a chance to invest in Pension scheme along with Tax benefits

Written by Sridhar nag Certified Financial Planner