As an investment cum pension scheme launched by the Government of India, any Indian citizen between the age of 18 years to 70 years, as well as employees of the public, private and unorganized sectors, can do so.
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Income Tax Exemption: If you want to earn well, then you can also save a lot of tax with it. Because your financial planning is one of the most essential steps to fulfill one’s life goals. A sound financial plan can help us manage our income, expenses and investments. Keeping in mind the fluctuating expenses, unforeseen requirements and economic downturn. How to design a strategy where the risk can be controlled and reasonable returns can be ensured for a worry free future.
In this regard, by learning to manage one’s taxes by utilizing income tax deductions/exemptions, one can not only fulfill one’s responsibilities as a citizen, but also follow one’s financial planning and make a substantial reduction on one’s overall tax liability. can also be obtained. However, many times, the average salaried individual neglects tax planning till the last minute, often forcing them to buy tax saving products at the last minute which do not meet their financial goals.
For example, a person decides to invest in a 5 year tax saving Bank Fixed Deposit (FD), which has no place in their financial planning. This is the reason why tax payment should be planned wisely and should be made an integral part of financial planning. Explain that the National Pension System (NPS) is a unique tax-saving investment option that reduces your tax liability to a great extent.
A good tool for tax exemption
As an investment cum pension scheme launched by the Government of India, any Indian citizen in the age group of 18 years to 70 years, as well as employees of the public, private and unorganized sectors, except those working in the armed forces, can . Though NPS is primarily designed to provide retirement security through attractive investment options that are accessible during working years and pension withdrawal solutions available in retirement years, it is also a good tool for tax exemption. Is.
How to invest in NPS account
NPS are low-cost pension plans, in which an individual can invest in a mix of equity, government debt, alternative investment funds and corporate debt, with allocation to equity capped at 75% till the age of 50, with Thereafter, it steadily decreases while the % allocation of loans increases. NPS comes with a lot of flexibility with respect to deposits and withdrawals, where you can opt for two types of account preferences. NPS Tier 1 and Tier 2. Both the NPS accounts come with in-built benefits and taxpayers can choose the most suitable option for themselves.
NPS Tier 1 Account
NPS Tier 1 account is specifically designed to build retirement security and is linked to tax exemption, which was highlighted above. Investment in NPS Tier 1 account cannot be withdrawn till retirement or at the age of 60 years, except in exceptional circumstances such as death of the account holder or medical contingencies etc. Under this account, an individual has to make a minimum contribution of Rs. .
1,000 at the time of account opening in this scheme and can withdraw up to 60% of the total amount accumulated after your retirement in a tax-free manner. The remaining 40% is used to buy annuities to secure a regular monthly income source in the form of pension. During the years of contribution, the NPS subscriber has to deposit Rs 1,000 in a year and Rs 500 at a time.
nps tier 2 account
On the other hand, NPS Tier 2 account is a voluntary savings account with no lock-in period. It is similar to an open ended mutual fund in terms of allowing easy liquidity with the withdrawal process generally taking up to three days. Individuals can either withdraw the entire corpus as a lump sum amount or make multiple withdrawals without any limit.
No tax exemption is provided for investors in NPS Tier 2, except for those subscribers who are government employees, for whom contribution to NPS Tier 2 is eligible for deduction under section 80C. In availing this particular SOP, the subscriber shall have to bear a lock-in period of 3 years. No minimum balance or minimum contribution is required in a year; However, the minimum contribution amount at any point of time is Rs.250.
Can claim tax exemption under 80CCE
If you have an NPS Tier 1 account, you will enjoy an exempt-exempt-exempt (EEE) status, where the first exemption is in respect of contributions made to it. Any person who is a subscriber of NPS Tier 1 account can claim the benefit of tax exemption on Rs 1.5 lakh under section 80CCE within the overall limit of Rs under section 80CCD(1).
Additionally, the NPS Tier 1 account is eligible for an additional tax deduction of Rs 50,000 under IT section 80 CCD (1B), over and above the limit of Rs 1.5 lakh prescribed under section 80 CCE. The tax concessions for NPS do not stop here. For subscribers under NPS Corporate Model, the basic + DA salary of the employee p.a. Employer’s contribution up to 10% of Rs. It is also tax-deductible under section 80CCD(2).
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