New Payment Scheme: Here’s a good news for the tax payers. Now you can get taxexemption over and above 1.8 Lac exemptions under 80C and 80CCF. As under newlyintroduced 80CCD section you can get an additional exemption of 10% of yourbasic salary. Your employer has to inject this amount on your behalf in the New Pension Scheme. This will enablethe taxpayer to save more tax by reducing his taxable income by 10% of hisbasic salary. This clause was added in the previous budget.
Calculation: Supposeyour basic salary is Rs 3.6Lac perannum. By investing in NPS you can reduce your taxable income by Rs 36000/- for the financial year. Assuming youfall under a tax bracket of 30%, youcan reduce your tax liability by Rs 10,800/- i.e. 30% of Rs 36000. This taxexemption under section 80CCD will be over and above the Rs 1 Lac limit undersection 80C and Rs 20,000/- under section 80CCF.
All this is fine. But there is one small hurdle before youcan benefit from the New Pension Scheme. It is your employer who invests onyour behalf into this scheme. You do not have a direct control over it. Andyour employer has to be convinced for depositing this amount in the new pensionscheme and including this in your pay package. You have to ask your employer toreadjust your salary structure to include this component in your CTC. Only afew corporations offer this benefit to their employees currently due to lack ofawareness.
If you do the simple math you will notice that if yourcompany starts providing you the benefit you will have your salary incrementedby 3% of the basic salary if you fall under 30% tax bracket and likewise.
- The NPS account requires a minimum contribution of Rs 6000/-per year.
- The amount cannot be withdrawn before the age of 60 years.
- You can only withdraw 60% of the amount at that time. Withthe rest 40% you will be required to purchase a life annuity.
Life Annuity: A life annuity is a kind of insurance productunder which the an institution mostly a life insurance company promises to makeregular payments at future dates in exchange of an immediate payment of someamount or some series of payments by the buyer before the onset.
This was a small description of New Pension Scheme which canhelp you boost your savings.