NPS Investment: NPS is a good option for retirement savings, especially for those looking to invest in a long term investment scheme for additional tax benefits.
NPS Investment: National Pension System (NPS) is a long term retirement savings scheme for systematic investment if funds are to be created for a long time. Investors invest in it for pension, which is invested in Equity and Debt, and they get returns from it. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Below we are telling you some important things about this scheme and its benefits related to tax.
Who can invest?
Any Indian citizen between the age of 18 and 65 years can join this scheme. Both residents of India and Non-Resident Indians (NRIs) are eligible to invest in NPS.
How many types of NPS Accounts are there?
Tier I Account:
This is a non-withdrawal i.e. non-withdrawal pension account. Withdrawals are permitted only under certain circumstances (such as pandemic or children’s education/marriage), and on retirement.
Tier II Account:
This is a Voluntary Savings Account, and members can withdraw their savings from this account at any time. However, tax benefits are mainly attached with Tier I accounts.
Investment Options:
Subscribers can choose to invest in different asset classes such as Government Securities, Corporate Bonds, and Equity. Apart from this, they can also decide the asset allocation keeping in view the risk on their own.
What are the Tax Benefits available on NPS?
Section 80CCD(1):
Under Section 80C, 10% contribution to NPS by any salaried employee and 20% contribution of total income for self-employed comes under exemption up to Rs 1.5 lakh.
Section 80CCD(1B):
Subscriber u/s 80CCD(1) Rs. Above the limit of 1.5 lakh in NPS the maximum amount is Rs. Additional deduction can be claimed for investment of Rs.50,000.
Section 80CCD(2):
Contribution by the employer to the NPS account of the employee will get tax benefit on 10% (Basic+DA) of the salary without any maximum limit.
Withdrawal and Exit Rules:
At the age of 60 years, the subscriber can withdraw 60% of the tax-free corpus. An annuity has to be purchased from the remaining 40%, so that the subscriber gets regular pension.
Partial Withdrawal:
After three years of investment, partial withdrawals can be made from NPS for certain cases such as higher education of a child, marriage, purchase/construction of a house or treatment of a critical illness.
Annuity:
Annuity is purchased from a part of the corpus, this part is tax free, but you will have to pay tax on the pension received from the annuity.
NPS Extension and Continuation:
After the age of 60 years, a subscriber can extend his NPS account for another 10 years. Or can continue investing continuously for 70 years without withdrawal.
NPS is a good option for retirement savings, especially for those looking to invest in a long term investment scheme for additional tax benefits. However, before investing, it is very important to understand the investment risk and plan well. For this you can consult a financial advisor.
