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What are the Common Myths About the Tax Benefits of NPS?
The National Pension System (NPS) is a retirement savings instrument that offers attractive tax benefits to encourage people to save for their golden years. However, there are many myths surrounding the actual tax benefits you can avail of with NPS. This confuses and stops people from availing of a financially beneficial offering. In this article, we will bust some common myths about the tax perks of investing in NPS. Understanding the realities will help you make an informed decision about using NPS as a tax-saving tool.
Myth 1: NPS Tax Benefits are Just Like Other Investments
NPS offers additional, exclusive tax benefits that most other tax-saving investments do not. Under Section 80C, you can claim a deduction up to ₹1.5 lakhs for NPS contributions, just like other options such as PPF, ELSS, etc. However, NPS offers further deductions:
● Section 80CCD(1B): An extra ₹50,000 deduction, over and above the 80C limit
● Section 80CCD(2): Up to 14% (new regime) is deductible from employer contributions
This is a key difference from other tax-saving investments. Under 80CCD(2), employer NPS contributions up to 14% of basic pay become deductible from taxable salary. No other investment gives salaried individuals this triple tax benefit—80C, 80CCD(1B) and 80CCD(2).
Myth 2: NPS Withdrawals are Fully Taxable
At age 18, the child’s NPS account transitions to a standard NPS account. At exit (typically age 60), up to 60% of the corpus can be withdrawn tax-free as a lump sum, while at least 40% must be used to purchase an annuity, the income from which is taxable. If the corpus is below ₹2.5 lakh, it can be fully withdrawn tax-free.
Compare this to PPF, EPF or VPF, where your accumulations and withdrawals are tax-free only until you retire. Post retirement, interest earnings exceeding ₹50,000 per annum are subject to tax. NPS scores over other retirement schemes here by making 60% of the corpus tax-free irrespective of the holding period or quantum withdrawn.
Myth 3: You Lose Tax Benefits if You Exit Early
This myth stems from partial knowledge. While an early NPS exit does limit the lump sum withdrawal percentage, it does not take back the tax benefits already availed on contributions. For instance, exiting before 60 years only allows withdrawals up to 20% of the corpus instead of 60%. However, all contributions for which you claimed tax deductions will not be added to your income in the year of withdrawal.
The taxman may not ask you to return or nullify deductions enjoyed in previous years. The only impact is that your withdrawals get restricted if you exit before the maturity period of 60 years. So, while early exit impacts liquidity, it does not reverse previously claimed NPS tax benefits.
Myth 4: NPS Benefits Only High-Income Groups
NPS tax benefits are meant for all individuals who pay income tax, irrespective of their salary brackets. For instance, even fixed-income senior citizens can open an NPS account and reduce their tax outgo by ₹50,000 through section 80CCD(1B) deductions.
Similarly, employees across MNCs and SMEs – from blue to white collar roles – can claim NPS tax benefits under 80CCD(2) on employer contributions. The only criterion is that you should have some tax liability to offset through these deductions. So while HNIs may gain more in absolute rupee terms, NPS tax advantages are very much relevant for middle-income groups too.
Myth 5: Lock-in Defeats Flexibility for Tax Planning
NPS indeed comes with longer lock-in requirements than ELSS, PPF, or ULIPs. However, one must evaluate this from a retirement planning perspective. NPS aims to create a pension corpus and hence, places withdrawal limits. However, this does not make it inflexible.
NPS allows partial withdrawals of up to 25% of own contributions before maturity for specific expenses like children’s education/marriage, or buying residential property. You can plan your withdrawals for these crucial life goals. Additionally, you can withdraw the entire corpus if you are diagnosed with any specified critical illness.
So, while NPS discourages random withdrawals, it does account for critical liquidity needs. Partial withdrawals can be used for tax planning while the rest of the corpus remains invested for retirement.
Conclusion
NPS is fundamentally meant for retirement planning, not just tax savings. The lock-in period and withdrawal rules promote disciplined long-term investing. At the same time, exclusive tax benefits make NPS very attractive. Instead of getting swayed by superficial myths, evaluate NPS objectively for its dual advantage – tax efficiency coupled with wealth creation for your golden years. Use it strategically along with other tax-saving options to maximise deductions and secure your financial future.
FAQs
1. Is it good to invest in NPS for tax benefits?
Yes, NPS is great for tax savings. Under Sections 80CCD(1) and 80CCD(1B), you can save up to ₹2 lakh, plus extra deductions for employer contributions under Section 80CCD(2).
2. Is NPS 100% tax-free?
No, NPS is not fully tax-free. After age 60, 60% of your withdrawal is tax-free, but the remaining 40% used for annuity payments is taxed based on your income slab.
3. Can I claim both 80C and 80CCD?
Yes, you can claim both. Section 80CCD(1) is part of the ₹1.5 lakh 80C limit, but Section 80CCD(1B) gives an extra ₹50,000 deduction, and 80CCD(2) covers employer contributions.
4. Can I exit from NPS after 1 year?
Yes, you can exit early, but there are restrictions on how much you can withdraw. Staying longer helps your money grow and keeps your tax benefits intact.
5. What happens to 40% of the NPS amount after death?
If you pass away, your nominee can withdraw the entire NPS corpus, including the 40% annuity portion, as a lump sum, tax-free, or use it to buy an annuity.
MAM
Bharat Vedica launches ‘From Beehives to Bottle’ campaign
Honey brand uses honeycomb-inspired hexagon bottle and reels to celebrate nature’s craft.
MUMBAI: Bharat Vedica just bottled nature’s buzz because when bees build the perfect shape, the smartest thing a brand can do is copy the homework. Bharat Vedica, the wellness-focused organic brand under A Patel Venture, has rolled out a digital-first campaign titled ‘From Beehives to Bottle’ that traces honey’s journey from blossom to breakfast table. The storytelling series of Instagram reels follows bees collecting nectar, the transformation inside the hive, and the final bottling turning a quiet natural process into engaging short-form content.
At the centre of the narrative is the brand’s new hexagon-shaped honey bottle, directly inspired by the honeycomb’s geometry widely regarded as one of nature’s most efficient designs. The shape serves as both packaging innovation and visual metaphor for precision, balance and harmony in every drop.
Nutritionist Kiran Kukreja (Nutty Over Nutrition) appears in the campaign content, explaining raw honey’s everyday benefits and its role in modern wellness routines.
The reels have driven strong performance on Instagram, with the brand recording a high double-digit month-on-month increase in follower acquisition and impressions reaching multiples of the existing base significantly boosting top-of-funnel visibility and discovery among premium consumers.
Bharat Vedica MD Arvind Patel said, “Bees build honeycombs with remarkable precision, creating a structure that represents efficiency, balance, and harmony. The hexagon bottle draws inspiration from that natural design, translating the beauty of the hive into something people can experience in their everyday kitchens.”
The refreshed raw honey range includes Ajwain Flower Honey, Rose Petal Honey, Forest Honey and Saffron (Kesar) Honey, available in 250 g and 500 g sizes. It is currently sold on the brand’s website and Amazon, with wider retail availability planned soon.
In a wellness world full of loud promises, Bharat Vedica quietly lets the bees do the talking proving that sometimes the sweetest story isn’t invented in a boardroom, it’s already humming away in a hive.
