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Can I invest more than 50k in NPS Tier 1 without any tax implication?

sanvar (NA) (54 Points)

01 June 2023

Dear experts,

1) I understand that under 80CCD(1b), I can invest 50,000 to avail tax exemption. When I checked the NPS retirement planning calculator with my retirement pension objective, it says that I need to contribute 4 lakhs every year to achieve my goal. So, from a retirement pension perspective, I would like to contribute more in a financial year - for example, if I invest 4 laksh in NPS Tier 1 every year, is there going to be any tax deduction on the 4 lakh amount or any other tax implication that I should be aware. Please advise?

2)Also please suggest any other investment ares where I can put some amount regularly,

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14 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (178099 Points)
Replied 01 June 2023

1. Under new tax regime only the contribution by your employer to NPS will be tax free. You will not get any deduction for your contribution. Under old regime the limit was Rs. 1.50L u/s. 80C+ Rs. 50000/- u/s. 80CCD(1B)

2. 60% of the corpus on withdrawal from NPS is tax exempt while 40% will be taxable unless invested in annuity plans/

3. Better invest in any other retirement fund/s

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sanvar (NA) (54 Points)
Replied 01 June 2023

Thanks for the reply, I have opted for old tax regime. By your reply, I understand that I can invest more than 50,000 in NPS Tier 1 and income tax will only be applicable on 40% Corpus if it is not invested in annuity plans and there there is no income tax on the amount that I deposit > 50000 in NPS Tier 1

Is that understanding correct?

1 Like

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (178099 Points)
Replied 01 June 2023

Correct. You don't get tax deduction by investment in NPS (for old regime 1.50L +50K is allowed), but you do not pay extra tax, as it is already tax paid. On the contrary you need to pay tax (over 40%) on the amount at the time of withdrawal, which is already tax paid investment, so that way it is double taxation.

1 Like

veerendar singh (tax consultant) (3301 Points)
Replied 01 June 2023

You can deposit more than 50k. but you will get deduction only upto 50k.

upon retirement you will be taxed on 40% of total withdrawal amount. it does not always amount to double taxation as throughout your life you might have enjoyed tax benefits by way of deductions under 80c and 80ccd. it may be said that instead of taxing an income at the time of earning, its taxed on retirement. but the methodology adopted seems a bit unscientific.

sanvar (NA) (54 Points)
Replied 01 June 2023

But at the time of retirement, only if I withdraw the remaining 40% it would be taxed isn't it? So if I purchase annuity plans for the remaining 40% and withdraw only 60%, nothing is taxed isn't it?

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Mahesh Shah (2308 Points)
Replied 01 June 2023

Yes invest 40 percent and no tax

1 Like

sanvar (NA) (54 Points)
Replied 01 June 2023

At the time of income tax filing, when I give my NPS details and if I mention that I deposited for example 60000, then will the remaining 10000 be taxed?

CA Aakarsh Jain (CA) (10431 Points)
Replied 02 June 2023

Yes, as deduction will be allowed only for 50k.

1 Like

sabyasachi mukherjee (27579 Points)
Replied 02 June 2023

Before investing in nps you need to check whether limit has crossed.

sanvar (NA) (54 Points)
Replied 02 June 2023

Ok, then why does NPS Propserity Planner tell that I need to invest 3 to 4 lakhs a year to get my desired retirement income if I can invest only within the limit prescribed?

So are they telling that you can put any amount you want, but extra will get taxed at the end of the financial year and afer retirement you will get the desired retirement income?

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CA Aakarsh Jain (CA) (10431 Points)
Replied 02 June 2023

Yes, you are correct now. If you wanna discuss more in detail. I'm leaving details in your inbox.

sanvar (NA) (54 Points)
Replied 02 June 2023

ok, I messaged you back.

So investing extra will lead to double taxation concept. 1st tax at the end of financial year for amount above the prescribed limit and second tax on the annuity income.

As investment is only under Tier 1 of NPS, as an individual subscriber (not as an employee), can I contribute 2 Lakhs p.a to NPS Tier1 and during income tax filing can I divide the 2 lakhs under 80CCD (1) and 80CCD (1B) or can I contribute only 50000 and claim it under 80CCD (1B)?