Invest in NPS - Best Option to Save your Tax!

Hello,

Have you tried National Pension System (‘NPS’)? It is a well-structured pension plan that requires contribution every year so that you can get a pension after the age of 60.

Why NPS?

• Digitally Enabled Process

• Lowest Cost Structure

• Tax Benefit over section 80C

• Enjoys Exemption on withdrawal

• Flexibility of Contribution

• Choice of Asset Allocation

• Choice of Investment Strategy

Any citizen of India between the age of 18 – 70 years can join the Scheme and continue till 75 years of age.

Under NPS, there are two types of accounts, namely, Tier I and Tier II. Tier I account is a non-withdrawal permanent account. At the same time, Tier II is a voluntary retirement plus savings account. One can open a Tier II account only if they have a Tier I account. Tier-II account is more flexible in terms of investment and withdrawals.

Tax Benefits under NPS

Contribution to the extent of Rs.50,000 is eligible for tax deduction u/s 80CCD (1B) of IT Act, 1961. This is over and above tax benefit u/s 80C. Also, this benefit is for both salaried and self-employed professionals.

At the same time, if the 80C limit of an individual is not exhausted, he/she can invest in NPS as well to claim tax benefits under section 80C. Investors can only withdraw 60% of the accumulated amount at the age of 60. This 60% doesn’t attract any tax, therefore tax-free. Moreover, the rest 40% has to be used to purchase an annuity which will pay a pension every month for a lifetime to the subscriber.

If a government employee opts for voluntary retirement

A minimum of 80% of the accumulated corpus has to be used to purchase an annuity. If the accumulated corpus in the NPS account is less than INR 1 lakh, one can redeem it completely.

If a private sector employee opts for voluntary retirement

A private sector employee who opts for voluntary retirement before the age of 60, should’ve made contributions to an NPS account for at least ten years. They should use 80% of the corpus to purchase an annuity. Also, if the accumulated corpus in the National Pension System account is less than INR 1 lakh, one can withdraw completely.

NPS Account Tier-1 and Tier-2 Withdrawal rules

NPS Tier 1 Withdrawal Rules

Following are NPS rules for Tier 1 account:

• Subscribers can make up to three partial withdrawals from NPS Tier 1 during the NPS account’s investment tenure.

• NPS tier 1 account allows withdrawals only in certain conditions. The partial withdrawals are allowed on special events such as a child’s marriage, medical treatment, home purchase, etc.

• Furthermore, partial withdrawals cannot be more than 25% of the contributions. Also, they are tax-free.

• One can download their NPS withdrawal form tier 1 here. This will help them with NPS partial withdrawal online.

• Also, the National Pension System account matures when the subscriber reaches the age of 60. The subscribers can only withdraw up to 60% of their NPS corpus tax-free. Furthermore, the remaining 40% has to be used to buy an annuity. However, the annuity will be taxable each year.

• Additionally, premature withdrawals before the age of 60, are allowed only after three years of account opening. Also, such premature withdrawals have a limit on withdrawal corpus. A minimum of 20% of the corpus can be withdrawn, and also these are taxable. And, the remaining 80% has to be converted to an annuity.

NPS Tier 2 Withdrawal Rules

NPS Tier 2 account does not have any lock-in period. Subscribers can withdraw at any time from the account. However, government employees have a lock in period of three years. Also, the NPS tier 2 account qualifies for tax saving up to INR 1,50,000 under Section 80C of the Income Tax Act 1961.

To Open NPS Account, please click on the below link and proceed with the paperless faster process of Account opening https://cra.kfintech.com/

I hope this information was of help. NPS is a much better way to invest corpus as compared to EPF. Since your money gets invested for long time and it has equity component, you are bound to create better wealth than EPF.

Also, mutual funds are great instruments to create wealth and with the “Mutual Funds Sahi Hai” theme, more than Rs. 15,000 crores is being invested in equities via SIP alone. This SIP has created a wealth of almost Rs. 10 lakh crore in the past 7 years. Can you connect us to any of your friends/relative to start planning for building the huge corpus?

I am available for discussion at [email protected] and +919773687483. I would love to meet and catch up.

Warm regards,
Tejas Lakhani
Building success stories through mutual funds…