The budget announcement for the current financial year (FY) made the National Pension System (NPS) a tad more attractive from a tax saving perspective. First, the finance bill (FY2015-16) removed the anomaly that had crept in during the previous budget. The budget for FY15 had increased the deduction limit under section 80C of the Income-tax Act, 1961 from Rs.1 lakh to Rs.1.5 lakh but retained the deduction limit of Rs.1 lakh on pension products that came under sections 80CCC and 80CCD. Pension products of life insurance companies come under section 80CCC and NPS comes under section 80CCD. Now these products get deductions up to Rs.1.5 lakh under the overall ceiling of section 80C.
The second attraction of NPS is the additional tax deduction of Rs.50,000 that takes the total deduction up to Rs.2 lakh. You can exhaust your deduction limit of Rs.1.5 lakh by investing in any of the 80C instruments and additionally get a deduction of Rs.50,000 through NPS or you can put the entire Rs.2 lakh in the NPS and claim a deduction.
