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NPS Investment: If you want to create a fund for a long time, then the National Pension System (NPS) is a long term retirement saving scheme for systematic investment. 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 tax benefits.
Who can invest?
Any Indian citizen between the ages of 18 and 65 can join this scheme. Both Indian citizens 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-withdrawable pension account. Withdrawals are allowed 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 associated with Tier I accounts.
Investment Options:
Subscribers can choose to invest in different asset classes such as government securities, corporate bonds, and equities. Additionally, they can also decide on the asset allocation based on their risk appetite.
What are the tax benefits on NPS?
Section 80CCD(1):
Under Section 80C, 10% contribution made to NPS by any salaried employee and 20% of total income for self-employed is tax free up to Rs 1.5 lakh.
Section 80CCD(1B):
Under Section 80CCD(1), subscribers can claim additional deduction on investment up to Rs 50,000 in NPS over and above the limit of Rs 1.5 lakh.
Section 80CCD(2):
Contribution made by the employer to the employee's NPS account will be eligible for tax benefits up to 10% of salary (basic + DA) without any maximum limit.
Withdrawal and Exit Rules:
At the age of 60, the subscriber can withdraw 60% of the tax-free fund. The remaining 40% is used to buy an annuity, which provides the subscriber with a regular pension.
Partial Withdrawal:
After three years of investment, partial withdrawal can be made from NPS for certain special cases such as higher education of child, marriage, purchase/construction of house or treatment of critical illness.
Annuity:
Annuity is bought 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, a subscriber can extend his NPS account for another 10 years. Or he can continue investing continuously for 70 years without making any withdrawals.
NPS is a good option for retirement savings, especially for those who are willing to invest in a long-term investment plan for additional tax benefits. However, it is very important to understand the investment risk and plan well before investing. For this you can consult a financial advisor.