How to save taxes by investing

There are several ways for an Indian investor to save on taxes by investing. Some potential strategies include:

  1. Investing in tax-saving instruments such as Equity-Linked Savings Schemes (ELSS) or tax-saving fixed deposits, which offer tax deductions under section 80C of the Income Tax Act. This section allows individuals to claim a tax deduction of up to INR 1.5 lakhs on their taxable income by investing in certain eligible instruments, including mutual funds and Sovereign Gold Bonds.

  2. Investing in tax-free instruments such as certain types of government bonds, which are exempt from tax on the interest earned.

  3. Investing in pension schemes, which offer tax benefits on the contributions made and the returns earned. By investing in the National Pension System (NPS) you can take advantage of the tax deductions available under section 80CCD(1B) of the Income Tax Act. Individuals can claim an additional deduction of up to INR 50,000 under section 80CCD(1B) for contributions made to the NPS.

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NPS introduces a systematic lump sum withdrawal scheme; details inside

In this article, we’ll unfold the intricacies of the Systematic Lump Sum Withdrawal (SLW) scheme recently introduced by the National Pension System (NPS).

The Pension Fund Regulatory and Development Authority (PFRDA) has recently thrown a new card into the financial deck by allowing National Pension System (NPS) subscribers to withdraw up to 60% of their pension corpus through the Systematic Lump Sum Withdrawal (SLW) service.

  1. The SLW Gamechanger

In a circular dated October 27, the PFRDA proposed the introduction of the Systematic Lump Sum Withdrawal (SLW) facility. This groundbreaking option allows subscribers to withdraw a portion of their pension corpus periodically – be it monthly, quarterly, half-yearly, or annually.

The catch? You can enjoy this flexibility until the ripe age of 75, offering a unique financial tool for those planning their retirement.

  1. Phasing Withdrawals: A Closer Look

The existing guidelines allow NPS subscribers to defer annuity and withdraw the lump sum post-60 years or superannuation. Now, with the SLW option, the lump sum withdrawal process becomes more sophisticated.

Subscribers can choose between a single-tranche withdrawal or an annual basis withdrawal, the latter requiring them to initiate the withdrawal request each time.

  1. The Automated Advantage

Here’s where the SLW option shines: automation. By automating the periodic selection of SLW, subscribers can enjoy a hands-off approach, eliminating the need for manual requests.

This not only streamlines the process but also maximizes retirement benefits by adding a layer of flexibility and liquidity.

  1. Market-Linked Gains and PRAN

Staying invested in the Permanent Retirement Account Number (PRAN) according to your investment preference while utilizing the SLW option allows subscribers to benefit from market-linked investment gains.

It’s a win-win, as you can enjoy the best of both worlds – flexibility and potential returns.

  1. NPS Tiers: Understanding the Basics

NPS offers two types of accounts: Tier I and Tier II. Tier I involves regular contributions from both the subscriber and the employer, forming the backbone of pension funding during retirement. On the other hand, Tier II is a voluntary savings account, offering flexibility in deposits and withdrawals but without government contributions.

  1. Tax Talk: A Closer Look at Withdrawals

For early withdrawals from NPS Tier I, subscribers can withdraw up to Rs 1 lakh without any tax implications. Beyond this threshold, up to 20% of the total withdrawal amount is subject to income tax. However, a substantial 80% of the total contribution must be invested in annuities, providing a tax-efficient avenue for NPS subscribers.

  1. Tax Deductions and NPS Contributions

The Income Tax Act provides substantial tax exemptions for NPS Tier I subscribers. Sections 80CCD(1), 80CCD(2), and 80CCD(1B) offer deductions for both self-contributions and employer contributions. Notably, subscribers can claim a tax exemption of Rs 1.5 lakh on these contributions.

  1. The Magic Number: 60% Exemption

The cherry on top? Any withdrawal up to 60% of the fund from NPS is exempted under Section 10(12A) of the Income Tax Act, 1961, providing a substantial tax benefit for those looking to access a portion of their pension corpus.

In conclusion, the introduction of SLW by the PFRDA brings a refreshing breeze of flexibility and control for NPS subscribers. By navigating the intricate landscape of NPS tiers, tax benefits, and withdrawal options, individuals can craft a personalised retirement strategy that aligns with their financial goals and aspirations.


Disclaimer: This post has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.

Great overview of tax-saving strategies for Indian investors! These options indeed provide avenues for maximising tax benefits while building wealth. It’s important for investors to explore these options and consult with financial advisors to make informed decisions aligned with their financial goals and tax planning needs.

It’s too difficult to save taxes now days like how could anyone manage those

Great overview on tax deduction. It’s crazyyy !!!

Wonderful, the overview is really good.

Investing in tax-advantaged accounts like 401(k)s or IRAs can lower your taxable income. Additionally, consider tax-efficient investments like index funds or municipal bonds. Consulting with a financial advisor can help tailor a strategy to your specific situation.