In the retirement years, NPS provides assured annuity amount/income stream for the investor, along with taxation benefits similar to PPF and EPF.
The National Pension System (NPS) is considered one of the best investment tools for retirement planning in India. Investments in NPS are largely focused on generating funds for the retirement of investors as well as giving them a pension. NPS also provides the benefit of tax-saving. This scheme is especially for self-employed professionals, those working in the unorganized sector.
You can invest in NPS through two options – auto and active choice. These decide the asset allocation of your investment. With the accumulated saving from an NPS account on maturity – to get the regular pension a depositor has to use 40 per cent of that to buy an annuity from an insurance company.
Even though being an ideal option for retirement, its low popularity is because of the lower commission on the sale of the product. Yet, according to experts when compared to other assets in the retirement category it almost stands out with some lucrative features.
1. NPS is a low-cost investment product and offers compounding benefits to the subscriber.
2. Investors get the flexibility to choose among the asset class – active or auto choice. Under the auto choice, one’s investment will get categorized under aggressive, moderate, or conservative funds, depending on one’s age. On the other hand, under the active choice, you as the investor has to decide how much allocation you want to put into different asset classes. This allocation won’t change with age and remain constant until you decide to change it, unlike under the auto choice option.
3. In the retirement years, NPS provides assured annuity amount/income stream for the investor. However, 40 per cent of the annuity part needs to be put in low-yielding options.
4. It also offers taxation benefits similar to PPF and EPF. NPS is an EEE product, wherein the contribution, interest, or the maturity proceeds from the investment are not liable to tax.
Additional tax benefits under NPS includes, on self contribution tax deduction with a ceiling of Rs 1.50 lakh under section 80 CCE. Under section 80CCD 1(B) additional tax benefit on investment of Rs 50,000 over and above the investment in NPS, i.e, you can get a total tax benefit of Rs 2 lakh (1.5 lakh + 50,000).
5. You also get online access with NPS. The account can be opened online and the account can also be transferred for an investor upon a change in employment or in case of relocation with the help of permanent retirement account number (PRAN) that is allotted to the NPS subscriber.