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Plan Your Retirement Wisely with NPS

Nov 25, 2021 Alankit

Lets get to know about the NPS tax benefits – nps tax benefits, nps benefits, nps tax exemption, nps income tax deduction, NPS tax benefit The scheme introduced by the Pension Fund Regulatory and Development Authority (PFRDA) and the Central Government to help the people have a better old-age without any hassle of income source is termed asNational Pension System (NPS).

The NPS is available for every individual (aged between 18 to 70 years) in the country either relating to any public, private or unorganised sector apart from armed forces. One investing in NPS invests in his or her future along with availing maximum tax benefits. NPS is the initiative undertaken by the Government of India to provide retirement benefits to all the citizens of the country and a way of long-term investment.

It is an excellent investment scheme for anyone who is planning their smooth retirement and will surely create a massive difference to your life post-retirement. There is no bar for investment so anyone who is earning between 18 to 70 years of age can invest in the NPS.

As per the PFRDA regulations, the NPS matures at the age of 60 years, but one can also extend it to 75 years. The individual investing in Tier-I account of NPS is allowed to make partial withdrawals after 3 years of opening the account in lieu of buying a home, childs education or treatment of any critical illness.

One investing in the NPS not only gains tax benefits but acquires multiple benefits including:

  • Returns or Interest
    Once you invest in NPS, a portion of your contribution is invested in the equities, which offers high returns as compared to other tax-saving investment schemes. If an individual is planning a long-term investment then the returns offered under equity investment is between 9% -12% annually, which will help them have a financially secure life post retirement.
  • Tax Efficiency
    The individuals investing in NPS are eligible for tax exemption under the Section 80C of the Income Tax Act only if their contribution is limited to Rs. 1.5Lakhs. Under Section 80CCD (1B) the individual can avail additional Rs.50,000 as a tax benefit of the scheme. Moreover, the contribution made by the employer is applicable for tax exemption.
  • Prompt Withdrawal & Exit Rules
    It is always beneficial to save for the future and in NPS it is mandatory for every investor to contribute in the scheme until the age of 75 years. However, if an individual is a regular investor and have been investing for 3 years in the scheme in continuation from the day of the account opening is liable to withdrawal up to 25% from the sum invested in the scheme for certain purposes.
  • Note
    The rule is only applicable on Tier-I accounts and not to Tier-II accounts
  • Equity Allocation Rules
    : The NPS invests an individual’s contribution not only into equities but also in different schemes, where an individual can allocate the maximum of 50% of their investments into equities.

Under Equity allocation, there are two options of investments available:

Auto Choice Active Choice
Under Auto choice investment, the contribution is made only after considering the risk profile and age of the investor. Under Active Choice investment, the individual is allowed select their scheme and split their investments accordingly.
  • Risk Assessment
    In the investment, the equity exposure of the NPS ranges from 50% to 75%. According to the prescribed range, the equity portion will reduce by 2.5% every year, starting from the year in which the investor of the scheme will turn 50 years of age.

This will stabilise the equation of risk-return in the interest of the investor resulting in making the invested fund safe from the volatility of the equity market. Thus, the earning potential under the NPS is higher as compared to other fixed-income scheme.

As we already know under the above stated benefit of tax efficiency, the exemptions are also applicable on the contribution made by the employer as well as the employee. Both the employer and the employee make their share of investment in the NPSlets understand the difference between both the investments:

80CCD (1) 80CCD (2)
Under this section the maximum deduction up to 10% of the salary of the employee can be claimed for tax exemption. Under this section, the benefit is not applied to self-employed taxpayers and the maximum amount entitled to the lowest tax exemption of the: (A) Actual NPS contribution by employer (B) 10% of Basic + Dearness allowance (C) Gross Total Income

Under Section 80CCD (1B) the individual can claim any additional self-contribution (up to Rs.50,000) as NPS tax benefit after the contribution of 1.5 Lakh is exhausted.

According to the nature of ones business, all the business owners and dealers who have registered under the GST regime can file their GST returns. For example:

Hence, NPS is one of the best approaches when one is looking forward to plan his or her retirement. AtAlankit , we help and guide every customer of ours to invest in the scheme and have a better life post-retirement while availing and efficiently utilising their corpus and the benefits that the scheme offers.

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