Question 1

What is the extra Rs 50,000 NPS deduction under Section 80CCD(1B)?

Accepted Answer

Section 80CCD(1B) provides an additional Rs 50,000 deduction for NPS contributions, over and above the Rs 1.5 lakh limit under Section 80C. This means you can claim up to Rs 2 lakh total deduction through NPS (Rs 1.5L under 80C + Rs 50K under 80CCD(1B)).

Question 2

How is employer's NPS contribution taxed?

Accepted Answer

Employer's NPS contribution is fully tax-deductible under Section 80CCD(2) with no upper limit (up to 10% of basic + DA for private sector, 14% for government employees). This is separate from the Rs 1.5 lakh 80C limit and Rs 50K 80CCD(1B) limit.

Question 3

What happens to NPS at retirement?

Accepted Answer

At age 60, 60% can be withdrawn as tax-free lump sum. The remaining 40% must be used to purchase an annuity (monthly pension), which is taxable as salary income. If corpus is less than Rs 5 lakh, entire amount can be withdrawn tax-free.

Question 4

Can I withdraw from NPS before retirement?

Accepted Answer

Partial withdrawal (max 25% of employee contribution) is allowed after 3 years for specific purposes like children's education, marriage, medical emergency, or home purchase. Maximum 3 partial withdrawals allowed during entire tenure.

Question 5

What is the difference between Active Choice and Auto Choice in NPS?

Accepted Answer

Active Choice: You decide allocation between equity (max 75%), corporate bonds, and government securities. Auto Choice: Lifecycle fund that automatically reduces equity exposure as you age - from 75% equity at young age to 15-35% at age 55. Choose Active if you understand asset allocation.

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