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It is true that many of us spend little time planning our retirement. We rely on EPF accumulations to come to our rescue. But for some of us, things have changed or soon will. Central government and a lot of private employers have moved to NPS. EPF is losing its glory in a falling interest rates scenario.
We have before and we will discuss more about the pros/cons of investing in NPS. But for today we’ll focus on tax implications when your employer contributes to your NPS account.
Calculate monthly Pension & Tax Benefits through Cleartax NPS Calculator
As a first step, let’s understand what ‘Salary’ is.
For a payment to be considered as salary, an employer-employee relationship must exist. In income tax act, taxable salary includes:
Therefore, any payment made by your employer to your pension account is a part of your taxable salary.
Your Form 16 will look like this
And a break up of your salary will show ‘Employer contribution to NPS or some such’.
Where you do not have a break up of taxable salary
Usually this amount is included as part of your total taxable salary. DO NOT add it again, find out from your payroll team if the employer’s NPS contribution has been added to your taxable salary. You can also do a quick calculation if you have your payslips. By adding all the components on your payslip – such as basic, DA, allowances, etc, – you should be just short of the employer’s contribution amount to arrive at your total taxable salary number.
Find out more about how to make the most of your contribution by maximising both these sections and possibly taking your total deductions to Rs 2 lakhs.
Read here : How to Maximise Tax Benefits if you have an NPS account.