Unlock Tax Savings with a Simple NPS Trick
Thank you for reading this post, don't forget to subscribe!A quick and easy way to cut your tax bill by over ₹15,000 might be hiding in plain sight. According to a viral LinkedIn post by banker Rahul Deshmukh, the secret lies in a often-overlooked tax deduction for the National Pension System (NPS).
Deshmukh shared a simple story about a friend who was complaining about high taxes. When asked if he had used the “extra ₹50,000 NPS trick,” the friend had no idea what he was talking about. A single contribution later, the friend saved a significant amount of money.
The trick uses Section 80CCD(1B) of the Income Tax Act, which provides an exclusive additional deduction of up to ₹50,000 for contributions to your NPS Tier I account. This is on top of the regular ₹1.5 lakh deduction you can claim under Section 80C. For someone in the 30% tax bracket, this one move can lead to a tax saving of around ₹15,600.
What You Need to Know About NPS
Deshmukh’s post also provided a simple guide to understanding NPS:
- Tier I: This is your core retirement savings account and the one that gets you the ₹50,000 tax benefit. It’s a long-term investment.
- Tier II: Think of this as a flexible, low-cost mutual fund. It has no lock-in period, making it ideal for short-term savings, but it doesn’t offer the same tax benefits.
- Tier II Tax Saver: A special option for Central Government employees, this provides tax benefits similar to an ELSS with a three-year lock-in.
For those just starting, Deshmukh recommends an investment strategy that’s heavy on equity when you’re young and shifts to debt as you near retirement. He also advises reviewing your pension fund manager’s performance and switching if they aren’t meeting your expectations.
Ultimately, Deshmukh describes NPS as a powerful “triple play”: it helps you save on taxes today, compound your wealth for tomorrow, and secure your dignity in retirement.
