NPS is a dynamic retirement planning scheme launched by the central government for Indian citizens to secure the future in finance after retirement. It is a kind of piggy bank with your choice of contribution that cannot be broken before retirement. The subscriber has the flexibility to choose from different NPS schemes to suit their risk profile and return expectation.
Key Features of NPS
- Flexible: Any Indian citizen of age 18 to 65 can invest in NPS. You can invest as low as Rs 100 with no minimum contribution requirement per year. Moreover, Tier 2 pension scheme comes with no restrictions for withdrawals and works more or less like mutual funds. Also, several NPS schemes are available to choose from according to their risk profile and return expectations.
- Independence: No matter which profession you are in, at a certain age, you will eventually retire, and there will be no more monthly income. Also, at old age, no one wants to become a burden on any family member. Therefore, NPS will help you to cover your day to day expenses at that time. As soon as you turn 60, 60 percent of your investment in NPS will be transferred to your bank account, and the remaining 40 percent will be credited every month.
- Long-term safety: if you are worried about taking care of your family after your death, NPS got you covered. You can choose an NPS Pension Plan that will continue to pay the pension amount to one of your family members after your death. It will remove the burden of financial security of your family from your mind.
- Tax Benefits: apart from long term financial savings, NPS helps you to save tax every year. You can get up to 10 percent deduction from taxable income for salaried people, and for self-employed people, you can get up to 20 percent deduction from total gross income. This deduction is over and above the deductions available under section 80C and comes under section 80CCD. The limit set under this section for deduction is Rs 1.5 lakh. However, it is essential to note that this deduction is only available for NPS investment in Tier 1 accounts.
Another tax benefit that you get under this scheme is that you need to pay any tax on the returns earned from the NPS investment and the maturity amount credited to your bank account.
- Safe investment: NPS investment is secure as it was introduced by India’s central government and is regulated by the government body- Pension Fund Regulatory and Development Authority. Also, you get an option during investment for automated risk deduction with age. In this, as you will cross a specified age limit, a part of your investment will be moved from equity to FD like instruments to ensure safety. It will ensure that most of your amount is invested in highly secured instruments when you are about to retire.
Apart from NPS, another popular investment option that also helps one with tax savings is PPF.
PPF and its calculation
Public Provident Fund (PPF) is for people who want a long term saving. It gives the benefit of both – return and savings. To compute your PPF, you will have to enter your annual installments, the maturity of PPF, total years, and annual installments.
You can calculate your total amount via a PPF Calculator, PPF maturity calculator, or PPF return calculator.
Investment in NPS or PPF is undoubtedly a good financial plan because you get the benefits of returns from investment and saving up for your old age. Investment in a government plan like NPS and PPF is less risky when compared with private securities. Additionally, you get to make tax savings under Section 80C too. Hence, planning an NPS or PPF investment from a young age is not a bad idea.