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October 2, 2022

Itax Software

Income Tax Software

6 strong reasons why you should never leave out NPS in your tax planning


At Finbingo, we have always supported low-cost and transparent financial products for young investors to help save taxes and build wealth. In this context, a great financial product that we recommend is the National Pension Scheme, also known as NPS.

In this post, we tell you 6 strong reasons why you should start investing in NPS. So, have a cup of coffee and read…

Reason #1: Every year, you get ₹50,000. Additional tax deduction up to

Investment in NPS is also eligible for an additional tax deduction of INR 50,000 under section 80CCD(1B) if you opt for the old tax regime. For a person falling in the 30% tax bracket, this means an additional tax saving of around ₹15,000 per year.

Think of this tax-saving addition as an “additional investment” for your retirement fund. So, this additional investment made over the next 25 -30 years can make a huge difference in your retirement corpus. Another way to look at it is that tax-saving increases your take-home income and frees up money to invest in other tax avenues.

Reason #2: Your money is 100% tax-free at maturity

As per the current tax rules, you can directly withdraw 60% of the total amount tax-free on maturity. For a balance of 40%, you must purchase an annuity; However, no tax is payable when purchasing an annuity. So, effectively, 100% of the withdrawal is tax-free.

Only the monthly annuity payments you receive will be taxable. Even this income would be eligible for the base tax exemption limit, which means only a portion of it can be taxed.

Over the years, the government has made the NPS taxation rules very friendly and attractive for investors. This tax treatment puts it almost the same as PPF and EPF and makes NPS an attractive investment for a young investor.

Reason #3: Long lock-in makes NPS a real retirement investment:

As a young investor, you think retirement is far away – why should I worry about it now? And this is the mistake due to which people start investing at the age of 40. The problem is that by this time you lose the power of compounding. The late you start your retirement planning, you need to invest per month.

NPS actually helps you in compounding so unlike other investments, The money you invest in NPS remains locked till you reach the age of 60 years. You might think this is a minus point. But no, it is a boon in disguise. Lock-in saves you from the temptation to spend your precious retirement savings on unnecessary expenses like buying an expensive phone or spending it on vacations.

Remember: You can get a loan for almost everything useless these days, but When you reach old age, no one will give you a loan for your retirement. The amount you invest in NPS today may pinch you, but you will bless yourself for your wise decision when you are old.

Reason #4: You are investing in very low cost and highly regulated investments:

In ELSS and ULIP, the fund management fee is anywhere as high as 2%. In comparison, the NPS fee is just 0.01% of the AUM. Can you imagine how much of a difference this cost savings could make to your retirement portfolio in 30 years?

In addition, the NPS is very closely regulated and monitored by the regulatory body PFRDA. This means that at all times, your rights and interests are well protected. This is very important considering the long term nature of investment and the critical nature of the financial goal for which you are saving your hard earned money.

Reason #5: You get multiple fund management and asset allocation options:

As a young investor, NPS gives you the flexibility to choose from multiple fund managers and fund allocation options.

With regard to fund manager selection, you can quickly look at the past performance of each fund to help you make a decision. Even after investing, it is also easy to switch funds online if you find a drop in performance.

With regard to fund allocation, you get the freedom to choose between active and auto asset allocation. If you are a savvy investor and know how the market works, you can plan for equity allocation, which can go up to 75%. However, if you are a passive investor, Auto Allocation automatically balances your asset allocation as per your age.

Reason #6: You can invest online from the comfort of your home:

It is easy to open an online NPS account from the comfort of your home. You get a Permanent Retirement Account Number (PRAN), which does not change even when you move to a city or change jobs.

When you open an NPS account, you get access to an online portal that you can use to manage your account online. In the portal, you can view an update on your account, download details, check fund performance, make new investments, switch between funds.

Not calling customer care again and again, no going to any office… isn’t that good?


NPS ticks all the boxes for whatever you want from your tax saving investment as a young investor – low cost, transparency, ease of investment, flexibility and tax savings. So, don’t delay. Start investing every year and secure your retirement!


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