National Pension Scheme: It is essential to start planning for the retirement as soon as possible. The National Pension System (NPS) comes into picture in this situation. With the exception of armed forces personnel, the NPS is available to all employees in the public, private, and unorganized sectors.
Members to the NPS scheme can make a minimum annual payment of nearly Rs 6,000 in the form of a lump amount or monthly instalments of Rs 500. An NPS account can be opened by any Indian citizen between the ages of 18 and 60, and after it matures at 60, it can be extended until the person’s 70th year.
The contributions received in the NPS Scheme are generally invested in market-linked instruments such as debt and equity. The returns that one might see, totally depends on how these instruments perform.
Read Also: National Pension Scheme (NPS) in India
Top 5 Benefits of NPS
1. Returns and Interest:
Compared to traditional tax-saving investment options like PPF and Fixed Deposit, the NPS route gives one higher returns, as it invests the contributions towards equities whose return is not fixed and there is no limitation on return on equity. It is ideal for all those looking to settle down post-retirement as it can provide an interest rate of 9 to 12 per cent in a year, depending on the type of NPS account you choose.
2. Tax Exemptions:
Under Section 80C of the Income Tax Act, any contribution made towards the NPS scheme up to the maximum of Rs 1.5 lakh is exempt from Income Tax. In case the NPS contributions into the scheme come from the employer or employee, it is also exempt from taxation.
Read Also: Income Tax Rebate: For Income Upto ₹ 5 Lakh Under Section 87A
3. Flexibility:
Future pensioners will like how flexible this method is since it is optional, allowing investors to select the type of investment, the amount of pension money to invest, and so on. The procedure of opening an account is likewise quite basic and fast. However, it is important to note that once an investment is opened, it must be maintained until the age of 60.
4. Withdrawal:
Even withdrawing is a benefit. It promotes you to save while still allowing you to withdraw small amounts. You can withdraw nearly 25% of your entire contribution after three years of creating an account. The rest accrues interest in your account. In the case of an emergency, premature removal is also possible.
5. Security and Reliability:
The NPS Scheme is regulated by the Pension Fund Regulatory and Development Authority of India (PFRDA). Due to the regularity with which one needs to invest, the oversight is also regular and helps keeps things transparent, making the entire process secure.
Read Also: Income Tax Benefits on Provident Fund Contribution
What are the Different Types of NPS?
There are generally two types of NPS offers or accounts that one can consider – Tier 1 and Tier 2 accounts.
Tier 1 Account
This type of NPS is a basic pension account with withdrawal restrictions. You can only take 25% of your pension before attaining the age of 60. The remaining 75% is used to purchase an annuity from a life insurance, which is basically a series of payments made over a period of time. The insurer is required to pay the covered income until the plan matures, that is when you reach the age of 60 or until you die. After reaching the age of 60, almost 60% of the annuity can be withdrawn, with the remaining 40% remaining in the annuity.
Tier 2 Account
This is the inverse of the tier 1 account. In this option, the pensioner can withdraw without limit and it is a voluntary savings option.
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