Benefits of using National Pension System (NPS) as a Retirement Option are as listed below:
- NPS allows additional deduction of Rs 50,000 from your taxable income which is over and above the limit of Rs 1.5 Lakh available under Sec 80 CCE of Income tax act 1961. So you can claim an effective tax rebate upto Rs 2 Lakh as against Rs 1.5 Lakh earlier.
- This scheme allows you to have assured money for your retirement years.
PFRDA (Pension Fund Regulatory and Development Authority) will monitor and regulate all the activities under NPS . It checks how your money in invested and makes sure that the fund managers are following the rules and guidelines. Its just like “SEBI for Stock Market” .
However a word of caution is that still its tax implications are high as it is Exempt-Exempt-Tax means at withdrawl of money one will get taxed and thus if you are a high tax payer, than one should avoid using this scheme unless it becomes Exempt-Exempt-Exempt i.e. even on maturity it should become Exempt from any kind of tax.
However if you are a tax payee, than you may have to rethink as its proceeds at maturity are taxable as per following scheme. NPS proceeds are taxable on maturity. Yes, when you finally withdraw that money from your NPS account after turning 60, you will have to pay taxes.
- 40% of the maturity proceeds can be withdrawn lump sum tax-free.
- Another 40% (minimum) of the proceeds have to be converted into an annuity which will be taxed as per your income tax bracket.
- Balance you can either pay tax as per you income tax bracket and withdraw immediately or convert it into an annuity.
So, take a call on it only after considering the tax at maturity and thus probably PPF will beat it if you are a tax paying individual and thus it will be better to go with it.
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