MAM
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 At exit (typically age 60), up to 60% of the corpus can be withdrawn tax-free as a lump sum, while at least 40% must be used to purchase an annuity, the income from which is taxable. If the corpus is below ₹2.5 lakh, it can be fully withdrawn tax-free.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over other retirement schemes here by making 60% of the corpus tax-free irrespective of the holding period or quantum withdrawn.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.
Brands
Estée Lauder to shed 10,000 jobs as new boss bets on digital shift
The cosmetics giant raises its profit outlook but stays silent on a possible merger with Spain’s Puig, as job cuts deepen and a three-year sales slump weighs on the turnaround
NEW YORK: Stéphane de La Faverie is not done cutting. Estée Lauder announced on Friday that it plans to eliminate as many as 3,000 additional jobs, taking its total redundancy programme to as many as 10,000 roles, up from a previous target of 7,000 announced a year ago. The company, which owns La Mer, The Ordinary, Tom Ford, and Aveda, employs roughly 57,000 people worldwide. The mathematics of what is now being contemplated is stark.
The fresh round of cuts is expected to generate a further $200 million in savings, bringing the total annual savings from the programme to as much as $1.2 billion before taxes. That money, De La Faverie has made clear, will be ploughed back into the turnaround.
A CEO in a hurry
De La Faverie, who took the helm in January 2025, inherited a company that had endured three consecutive years of annual sales declines. His response has been to move fast and cut deep. A significant portion of the latest redundancies reflects his push to reduce headcount at US department stores, long a cornerstone of Estée Lauder’s distribution model but now a channel in structural decline. In their place, he is accelerating the shift toward faster-growing online platforms, including Amazon.com and TikTok Shop, a pivot that is reshaping not just where Estée Lauder sells but how it thinks about its customers.
The numbers are moving in the right direction
Despite the pain, there are signs the medicine is working. Estée Lauder raised its profit outlook for the remainder of the fiscal year, guiding for adjusted earnings per share in the range of $2.35 to $2.45, above analyst estimates and a notable step up from the $2.05 to $2.25 range it had guided for in February. Organic net sales growth is expected to come in at 3 per cent, the company said, at the high end of the range it set out in February.
The share price tells a mixed story. After De La Faverie took charge, the stock surged nearly 60 per cent, buoyed by investor optimism that a longtime company insider could finally arrest the decline. But 2026 has been rougher: the shares have fallen 27 per cent this year, weighed down by disappointing February results and the overhang of unresolved merger talks with Spanish beauty giant Puig Brands SA. The company gave no additional details about those discussions on Friday, leaving the market to guess.
Silence on Puig
The proposed tie-up with Puig remains the most consequential unknown hanging over Estée Lauder. A deal with the Barcelona-based group, which owns brands including Carolina Herrera and Rabanne, would reshape the global luxury beauty landscape. But with nothing new to say and a turnaround still very much in progress, De La Faverie is asking investors to trust the process.
Three years of sales declines, 10,000 job cuts, and a merger that may or may not happen. At Estée Lauder, the overhaul has barely started.
