OPEN APP
Home / Money / Personal Finance /  How to get tax exemption on NPS payment

How to get tax exemption on NPS payment

IstockPremium
Istock

In the case of an individual being resident in India having taxable income up to 5 lakh, tax relief u/s 87A of the Act (up to 12,500) is available due to which no tax liability is required to be deposited if taxable income is up to 5 lakh

Listen to this article

I made an online contribution to the national pension system (NPS) on 29 March but this was reflected in the NPS account statement only on 4 April, implying that the contribution is for the financial year (FY) 2022-23. Since my bank account was debited during FY2021-22, will I get income tax (I-T) exemption under section 80 for FY2021-22? 

                        —Ravichandran

 

As per provisions of the I-T Act of 1961, an individual employed by the Central Government (on or after 1 April 204)/any other employer or any other individual tax payer, who has paid or deposited any amount in his account during the financial year towards notified pension schemes (including NPS), shall be eligible for a deduction (up to specified amount) in the computation of income.

Based on the literal reading of the provisions, it seems that the deduction may be allowed to the individual in the year in which the amount is paid or deposited by him into his NPS account. Accordingly, in your case, as the amounts have been paid/contributed into your NPS account on 29 March 2022, a deduction ought to be allowed for FY 2021-22.

However, in the absence of any specific instructions/clarifications, this may be scrutinized by the tax authorities which may then need to be substantiated based on the above provisions and the proof of payment i.e., debit of the amount paid and contribution receipt generated for 29 March 2022.

 

I am a central government employee and my taxable income falls under the basic exemption limit (less than 5 lakh). However, I have received 6,000 as prize  money from my university for educational performance. How do I report this additional income?

— Name withheld on request

 

Assuming that you are below 60 years of age, as per the provisions of the I-T Act 1961, the maximum amount not chargeable to tax (basic exemption limit) applicable in your case is 2.5 lakh. However, please note in the case of an individual being resident in India having taxable income up to 5 lakh, tax relief u/s 87A of the Act (up to 12,500) is available due to which no tax liability is required to be deposited if taxable income is up to 5 lakh.

Since the prize money from the state university is not in the nature of any scholarships granted to meet the cost of education, the amount so received will be taxable in your hands as “Income from other sources".

If your total taxable income (including the prize money) does not exceed 5 lakh, then there will not be any tax liability. In case your total taxable income exceeds 5 lakh, relief u/s 87A will not be available and you would be required to pay the taxes as per the applicable slab rates (which would depend upon your choice of tax regime i.e. old tax regime or the new tax regime). In either of the scenarios, you shall be required to file a return of income, if taxable income exceeds 2.5 lakh.

Parizad Sirwalla is partner   and head, global mobility services, tax, KPMG in India.

Write to us at mintmoney@livemint.com to get your personal finance queries answered from experts

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Recommended For You

Trending Stocks

×
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout