Topic: NPS

Back to Blog

NPS Scheme Benefits: Everything is good about it!

April 18, 2024

To start anything in life is one of the hardest decisions. Whether you need to start a new job or a new business venture. Although, planning for your retirement and investing in NPS is not a difficult task to start.

The National Pension System widely known as the National Pension Scheme or NPS has many scheme benefits. From low contributions to flexibility to invest to tax benefits, NPS has almost every feature for an investor to look for to plan his retirement. And not to miss, National Pension Scheme returns are potentially on the higher side. So, how can it benefit you?

In this blog, we’ll explore the benefits of the National Pension Scheme and give you reasons to invest in it.

NPS Benefits

Potential of High Returns: The National Pension Scheme returns are linked with the market and it has more potential than traditional investment or saving schemes such as FD and PPF. NPS invests in equities, alternative investments, corporate bonds, and government securities that provide diversity to your investment.

Investment Approach:  An investor can invest using the ‘active’ or ‘auto’ method. NPS gives you the flexibility to choose your investment process. In active choice, you can allocate your assets and decide how much to invest in various categories.  It also allows you to select the fund manager. Active choice lets you decide your approach, whether you want to invest aggressively, moderately, or conservatively.  If you don’t want to manage your financial portfolio then you can choose auto mode. It allocates your asset dynamically as per market conditions.

How can you calculate your NPS corpus? Click here to find out. 

EEE Tax Category: Contribution to NPS comes under the exempt-exempt-exempt (EEE) mode of taxation wherein the amount contributed to NPS, the income generated, and the amount of maturity are all tax-exempt. Additionally, you will get tax benefits of up to ₹1.5 lakhs under section 80 CCD (1) of the Income Tax Act. Furthermore, there is an additional deduction of ₹50,00 under section 80 CCD (1B) of the Income Tax Act over and above the ceiling of ₹1.5 lakh.

NPS Categories: An investor can start investing in NPS through Tier 1 and Tier accounts. However, it is mandatory to have Tier 1 before you open a Tier 2 account. If you are planning for retirement, a Tier 1 account can be your best option, however a Tier 2 account offers better flexibility in terms of withdrawals.

NPS Withdrawals: Contributions in NPS are not only tax-exempt but also withdrawals. You can take up to 60% of your corpus upon maturity and there will be no tax on it. Moreover, 40% of the remaining corpus can be used to buy an annuity so that you can receive it in the form of a monthly pension amount.

Low-Cost Investment: This is one of the attractive features of NPS. You can contribute to NPS with ₹500/- per month or ₹1000/- annually. This makes NPS one of the popular retirement plans in India.

To start investing in NPS, click here.

Conclusion

NPS gives the freedom to benefit from the nation’s economic growth until you retire. From the potential of high returns to tax benefits to flexibility to invest, NPS has become one of the lucrative retirement planning schemes for individuals. You can start investing in NPS without worrying about your future, you only need to plan for your retirement. 

Featured Posts

Unravelling the 5 NPS Tax Benefits User guide to opening an NPS account: A few points to considerTax Benefits of NPS: How you can reap them? A must read. How can NPS Benefits help you in your golden years? Explained 10 reasons to consider NPS as a pension plan 
Back to Blog

NPS Tax Benefits – Optimum Choice for an Investor 

March 21, 2024

Financial year is about to end and people who pay taxes invest in different schemes to save their taxes. But individuals also invest in NPS for tax saving purposes. In the recent past, NPS or National Pension System have gained popularity among investors due to its features and tax saving benefits.

But can you save tax through NPS? What are the Income tax sections that are associated with NPS?  Can salaried employees save tax under NPS? How NPS save tax in particular sections and how much a salaried employee can gain from it?

If one of these questions comes into your mind then this blog is for you.

NPS Tax Deduction

There are three sections, Sections 80CCD (1), 80CCD 1(B), and 80CCD (2) of the Income-tax Act, 1961 that allows you to claim tax benefit for NPS investment. Let’s have a look at each of them.

NPS Tax Benefits under Section 80CCD (1):

Contributions to the NPS may be deducted from your gross total income under Section 80CCD (1) of the Income-tax Act, 1961. Taxpayers who are self-employed or who are salaried may deduct their NPS investments under section 80CCD (1). 

With a cap of ₹1.5 lakh per financial year, the maximum deduction allowed under this section is 10% of your salary (Basic + DA) for those who are salaried or 20% of your gross total income if you are self-employed. 

But here, you need to remember that this limit falls within Section 80 CCE’s overall ₹1.5 lakh ceiling. Sections 80C, 80CCC, and 80CCD allow for a combined total of deductions that cannot exceed ₹1.5 lakh.

NPS Tax Saving Benefits under Section 80CCD (1B):

Contributions to NPS are eligible for an additional deduction of up to ₹50,000 under Section 80CCD (1B). This offers potential tax savings for both salaried and self-employed taxpayers, as it exceeds the ₹1.5 lakh limit allowed under Section 80CCD (1B).

NPS Tax Saving Benefits under Section 80CCD (2):

The employer’s contribution to an employee’s NPS account is covered by Section 80CCD (2). Therefore, it is only accessible to taxpayers who are working on a salary basis. However, the amount of deduction cannot exceed 14% of the salary when it comes to Central Government employees and 10% for any other employees.

Whereas in the private sector, many employees have the option to arrange their salary in such a way that their employer deducts it from their total cost-to-company (CTC) package, while contributing to NPS.

Conclusion

The National Pension System is one of the best options available to save tax for individuals. Although, other than saving tax, NPS stands out as one of the best retirement saving schemes for many Indians as it is regulated by PFRDA, an government entity. NPS invests in equity, government securities, corporate bonds, and alternative investments. It has the potential to provide you higher returns rather than traditional saving schemes, such as PPF or Fixed Deposits. So, if you are planning for retirement and looking for a credible option then NPS can be your first choice. 

Featured Posts

Unravelling the 5 NPS Tax Benefits User guide to opening an NPS account: A few points to considerTax Benefits of NPS: How you can reap them? A must read. How can NPS Benefits help you in your golden years? Explained 10 reasons to consider NPS as a pension plan 
Back to Blog

Navigating the New NPS Withdrawal Rule: How Will It Impact Your Savings

February 27, 2024

Have any news updates ever impacted your life, savings, or investment strategy? If so, it’s a positive sign that you stay informed about market trends and developments. This blog also provides an update on how changes to National Pension System (NPS) withdrawal guidelines starting from February 2024 could potentially affect your retirement plans.

What are the updated guidelines for making partial withdrawals? What should you remember? Is it a good option to go for a partial withdrawal or not? We will discuss all of these in this blog.

National Pension System

The National Pension System (NPS) is a retirement scheme for Indian citizens. It is a good scheme for those who are willing to plan their retirement and have a lower risk tolerance when it comes to investing. Want to know how NPS is better than any traditional savings scheme? Read here

What are the new rules for partial withdrawals from NPS?

An NPS subscriber may withdraw partially from his/her account after a three-year period. But it has to be kept in mind that there is a limit on the withdrawal amount. According to the master circular issued by the Pension Fund Regulatory and Development Authority (PFRDA) on January 12, 2024, an NPS account holder may withdraw up to 25% of his contributions. The employer-contributed portion of the corpus cannot be withdrawn. Additionally, a partial withdrawal of the returns generated by the contributions will not be permitted.

Let’s understand with an example. If you have invested ₹5 lakhs in NPS and your corpus is around ₹10 lakhs, then you are allowed to withdraw 25% of your contributions, not the entire corpus. So 25% of ₹5 lakh is ₹1,25,000, which is the maximum you can partially withdraw.

How many times in NPS is a partial withdrawal permitted?

Withdrawals from your NPS account are limited to a total of three times over the account’s duration, with a mandatory five-year gap between each withdrawal. However, this five-year gap condition is waived if the withdrawal is for medical treatment of a specific ailment.

Having covered the rules and criteria for partial withdrawal, let’s now explore the reasons that are taken into consideration for NPS partial withdrawal.

National Pension Scheme: Partial Withdrawal Reasons

Withdrawal from NPS is allowed under certain conditions only. What are they? Let’s learn them one by one, briefly.

  • Higher education for your child: If your child is willing to go abroad for higher education or he/she wants to pursue the course in India itself, then you are allowed to withdraw your contribution.
  • Marriage of your child: You can also withdraw contributions to prepare for the wedding of your child.
  • Chronic illness and disease: In certain circumstances, when someone suffers from a chronic disease like heart or kidney failure, you are allowed to take a partial withdrawal.

Conclusion

It is always fruitful when you stay updated and know the terms and conditions of a particular investment plan. Making sure that you take the time to understand the intricacies of NPS and devise a comprehensive strategy beforehand can help in a more secure financial future. Get started here.

Featured Posts

Unravelling the 5 NPS Tax Benefits User guide to opening an NPS account: A few points to considerTax Benefits of NPS: How you can reap them? A must read. How can NPS Benefits help you in your golden years? Explained 10 reasons to consider NPS as a pension plan 
Back to Blog

Maximize Your Tax Savings with NPS: A Complete Guide

February 22, 2024

As the end of the financial year approaches and a new one begins, individuals are gearing up to start planning for their goals and aspirations for the upcoming year. For many, planning taxes is a crucial part of this process, especially for those subject to income taxes.

But the question is: Can investing in the National Pension Scheme (NPS) lead to tax savings? The answer is YES! Let’s explore how we can leverage NPS to achieve tax benefits.

What is the National Pension System (NPS)?

NPS is a voluntary investment and retirement savings scheme for salaried people as well as for business owners. It was introduced by the Government of India in 2004, and it is regulated by the PFRDA (Pension Fund Registrations and Development Authority), a government entity that monitors NPS. NPS is a market-linked pension scheme that is managed by fund managers.

There are various aspects related to NPS tax savings, which are explained below.

Tax-saving Under NPS

As you know, there are two types of NPS accounts: Tier 1 and Tier 2. Contributions made to an NPS Tier 1 account are entitled to receive NPS-tax savings deductions, whereas a Tier 2 account does not offer any tax deductions or benefits. To know more about Tier 1 and Tier 2 accounts, read here.

Tax-Saving Benefits in NPS

  • Section 80C: You can receive NPS tax benefits under 80C as the deduction limit is ₹1.5 lakhs. If you want tax benefits under this section, you can invest the entire amount in NPS and claim the deduction.
  • Section 80CCD (1B): This is an additional tax benefit for NPS subscribers. An investor can claim additional tax deductions for his or her investments up to ₹50,000 under this section.
  • Section 80CCD (2): By opting for a corporate NPS contribution, you can contribute up to 10% of your basic pay to NPS which is tax deductible with a limit of ₹5.5 lakh..

However, it is to be noted that, up to 60% of your corpus is exempt from tax, and subsequent income from annuities is taxed under Section 80CCD (3) of the Income Tax Act.

Conclusion

In summary, there are several sections available for tax savings through NPS investments, but proper planning is essential. As this financial year will be ending soon, it will be beneficial for you to gain knowledge on this at the right time to help you save taxes while investing in NPS.

Featured Posts

Unravelling the 5 NPS Tax Benefits User guide to opening an NPS account: A few points to considerTax Benefits of NPS: How you can reap them? A must read. How can NPS Benefits help you in your golden years? Explained 10 reasons to consider NPS as a pension plan