If you are looking to save your Income Tax, you should consider National Pension System (NPS). In Budget 2019, the government changed few income tax rules on investment in the NPS, making it an even more attractive investment. Increased income tax exemption limit on withdrawal from NPS and some additional income tax benefits for employees who contribute towards the scheme, were announced in the Budget this year. 

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NPS is a government-sponsored savings scheme in which a government employee invests an amount from his/her monthly salary towards a regular pension. While the same contribution is made by the employer too. The funds are invested by pension fund managers in various investment schemes.

Know how to save your income tax in National Pension System:

There are two types of NPS accounts, Tier 1 and Tier 2. The Tier 1 NPS account is a pension account which prohibits withdrawals, while the Tier 2 account, which is an investment account in association with Permanent Retirement Account Number (PRAN). 

As far as the tax benefits are concerned, the investments in the Tier I account can save your income tax, while Tier 2 NPS account does not fetch you any tax benefit on investments. 

Here are the income tax benefits available under NPS scheme:-

1. There is an additional deduction for investment up to Rs 50,000 in NPS, available under Section 80CCD (1B) of Income Tax Act. 

2. The government in this budget has proposed to increase the income tax exemption limit on withdrawal from National Pension System (NPS) to 60 per cent, which is currently 40. As per the existing provisions of the Income Tax Act, up to 40 per cent of the total amount payable is exempted from tax in case of a payment from NPS Trust to its assessee.

3. FM also announced a new limit from 10 to 14 per cent of the contribution made by the government to the accounts of its employees. As per the existing provisions, any NPS subscriber can claim a tax deduction up to 10 per cent of gross income under Section 80 CCD (1) of Income Tax Act with in the overall ceiling of Rs. 1.5 lakh under Section 80 CCE of the Act.

4. At present the subscribers can partially withdraw from a Tier I NPS account before the age of 60 for specified purposes. According to Budget 2017, the amount withdrawn up to 25 per cent of subscriber contribution is exempt from tax.