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Want money after retirement? Here’s how National Pension Scheme will help

  • Have you considered investing your money in National Pension Scheme (NPS)? If you have, was it to fulfil your retirement needs or was it to save additional tax on ₹50,000 every year? If your reason to invest in NPS is tax benefit, then your investment approach is incorrect. The dangling carrot of tax benefit should not be looked at in isolation. Here is what you should know about NPS and how you should use it to build your retirement kitty effectively.

UNDERSTANDING NPS
 
Before you put your money in any investment instrument, it is important to understand it. Firstly, know that NPS is a defined contribution pension plan. Your money will be pooled in a pension fund. You can make an annual contribution till you turn 60 years of age and the minimum age requirement to invest is 18 years. If you invest in NPS, you can avail a deduction of ₹1.5 lakh under section 80C and also an additional deduction benefit of ₹50,000 under section 80 CCD. If you are in the highest tax bracket, it means a savings of ₹15,600 a year. Managed by Pension Fund Regulatory and Development Authority (PFRDA), NPS is not like a public provident fund (PPF) account where everyone just has one option—you invest and get a predetermined interest rate. In case of NPS, you have to make a choice. There are two accounts—tier 1 account, the pension account, which gives tax benefit and is mandatory to open for NPS, and tier 2 account, an optional account with withdrawal flexibility. Once you open an NPS account, you have to contribute a minimum of ₹1,000 in tier 1 account.
NPS gives you options in the form of fund manager and the type of investment choice. There are eight pension fund managers to choose from such as HDFC Pension Management Co. Ltd, Reliance Capital Pension Fund Ltd and UTI Retirement Solutions Ltd.
In terms of investment choice, you can opt for either active choice or auto choice. In active choice, you can create your portfolio with equity, corporate bonds and government securities. If you opt for auto choice, the fund manager will create a portfolio with the same option, but the percentage of investment in each asset class will be pre-decided.
At any point, the maximum investment shouldn’t be more than 75%. “For equity, till two years ago, PFRDA had limited the choice as there was a condition that you could invest only in Nifty stocks. Then they amended the guidelines and included broad-based stocks. As there is a Nifty hangover, in most portfolios, there is a Nifty bias,” said Sandip Shrikhande, chief executive officer, Kotak Pension Fund.
 
HOW TO USE NPS IN YOUR PORTFOLIO?
 
Firstly, don’t look at NPS in isolation only for tax benefit. “People who put only ₹50,000 to save tax, if you continue investing for 20 years, the corpus is not going to grow significantly to meet your entire retirement needs,” said Shrikhande. You should instead link the NPS investment to your retirement plan.
“Using NPS is a means to build a retirement fund. However, if you are in your 30s, simply using NPS will not work because the asset allocation changes. Someone in 30s will be fairly aggressive. Now, if you have a cap on how much you can invest in a particular asset class to restrict yourself, you can’t be flexible. So it would be better to have a basket of mutual funds to choose from. For someone who is younger, it is restrictive. Look at it as an add-on product for tax saving,” said Priya Sunder, director and co-founder, Peakalpha Investments.
Consider using NPS as one of the retirement investment tools, but don’t depend on it entirely.
  

Source: Livemint

How can you save more taxes in 2022 ? Here are 6 investment schemes to save more money

The best time to start your tax saving investments is at the beginning of a calendar year or a financial year. While tax planning is important, getting aware of all tax saving schemes and choosing the right one is crucial.

 

Tax saving schemes ensure you don’t pay more taxes and make money in the long run by investing in savings-oriented schemes. Here are some of the best tax saving options with a deduction of up to ₹1.5 lakh in your income tax for the year.

 

Here are a few options of tax saving schemes:

 

ELSS Mutual Fund

Equity-linked saving scheme (ELSS) is a type of mutual fund scheme that primarily invests in equity funds. ELSS offers tax benefits to investors. The investments in the scheme are eligible for tax deduction under section 80C of the Income Tax Act, 1961 up to a maximum of ₹1.5 lakh.

 

One can invest through both lump sum and systematic investment plans (SIP) to avail the tax deduction. This way, ELSS offers both investment and tax saving benefits.

Here are the five top performing ELSS funds in the industry:

 

Funds% return in last 3 years
Quant Tax Plan37.52%
BOI AXA Tax Advantage30.92%
Mirae Asset Tax Saver26.53%
Canara Robeco Equity Tax Saver26.19%
IDFC Tax Advantage (ELSS)24.54%

 

National Savings Certificate (NSC)

NSC is a fixed income tax-saving investment plan that you can open with any post office branch. The scheme is an initiative of the government of India and hence is relatively safer. The investment in NSC qualifies for deduction under section 80C of the income tax act of up to ₹1.50 lakh.

These certificates earn an annual fixed interest of around 6.8% per annum (revised every quarter by the government), thus guaranteeing a regular income for the investor. The scheme has two types of certificates — 5-year and 10-year.

 

National Pension Scheme (NPS)

NPS is a pension cum investment scheme launched by the government of India to provide old age security to citizens of India. The scheme offers tax saving options to both government and private employees. Any citizen between the age of 18-60 can invest in it. The amount invested by the depositor is invested in several schemes including the equity markets. Again the basic amount of deduction offered by the fund is up to ₹1.5 lakh on the same amount of investment. However, NPS allows one to get an additional ₹50,000 deduction under section 80CCD (1B), taking the overall tax deduction amount to ₹2 lakh.

 

Unit Linked Insurance Plan (ULIP)

ULIP is offered by insurance companies that, unlike a pure insurance policy, gives investors both insurance and investment under a single integrated plan.

A portion of the premium paid by the policyholder is utilised to provide insurance coverage to the policyholder and the remaining portion is invested in equity and debt instruments. ULIP also provides tax deduction up to ₹1.5 lakh.

 

Here are the top 5 best performing ULIP plans in the industry:

ULIP plans by insurance companies% returns in last 3 years
PNB MetLife – Met Pension Plus27.40%
AEGON Life iMaximize Plan – Opportunity Fund23.40%
Bharti AXA Life – Future Secure Pension – Growth Opportunities Pension Plus23.30%
Future Pension Advantage Plan – Future Pension Active21.80%
Kotak Platinum Edge – Frontline Equity Fund21.40%

 

Public Provident Fund (PPF)

PPF is one of the safest investment options to start with that can help you secure your retirement and save tax as well. The PPF has a minimum tenure of 15 years with as little as ₹500 to open an account.

 

You can open a PPF account through a post office or in any nationalised bank.

 

Income tax exemptions are applicable on the principal amount invested in a PPF account. The interest rate for PPF is set and paid by the government for every quarter which is currently at 7.1%, more than the savings rate in banks. Taxpayers can claim a maximum deduction up to ₹1.5 lakh.

 

Home loan

If you have taken a home loan to buy a new house, you are also allowed to claim a deduction of up to ₹1.5 lakh under section 80C of the income tax. The deduction can be claimed on the principal amount repaid in the particular financial year. Check your home loan interest certificate for EMI payment details.

 

However, note that even if you put more money i.e ₹1.5 lakh each in any of the above tax saving options like ULIP, ELSS MF, your maximum deduction from taxable income will still be a total of ₹1.5 lakh only.

 

However, investing in NPS can get you an additional ₹50,000 deduction, taking the overall tax deduction amount to ₹2 lakh.

 

Source: Business Insider

 

5 Most Popular Ways to Save Tax | Deeva Ventures Pvt Ltd

5 Most Popular Ways to Save Tax

1. Equity Linked Saving Scheme (ELSS)

As the name suggests, Equity Linked Saving Scheme or ELSS is a type of mutual fund scheme that primarily invests in the stock market or Equity. 


Investments of up to 1.5 Lac done in ELSS Mutual Funds are eligible for tax deduction under section 80C of the Income Tax Act. The advantage ELSS has over other tax-saving instruments is the shortest lock-in period of 3 years. 


This means you can sell your investment only after 3 years, from the date of purchase! However, to maximize returns from ELSS funds, it is recommended to keep your investments intact for the maximum duration possible. 


If you have an ELSS SIP (Systematic Investment Plan), each installment has a lock-in period of three years, which means each of your installments will have a different maturity date.


2. Life Insurance

Life insurance policies can be useful tax planning tools because the policyholder is eligible for tax benefits under the Income Tax Act 1961 (Act). 


Though there are multiple modes for saving tax, life insurance is one of the most effective tax planning instruments. Plans from Life Insurance can be used for protection, long-term savings, and tax planning.


3. Health Insurance

Health care plans provide tax benefits. Premiums paid towards your health care policy are eligible for tax deductions under Section 80D of the Income Tax Act, 1961. The quantum of the deduction is as under:


  • A) In the case of the individual, Rs. 25,000 for himself and his family

  • B) If an individual or spouse is 60 years old or more the deduction available is Rs 50,000

  • C) An additional deduction for insurance of parents (father or mother or both, whether dependent or not) is available to the extent of Rs. 25,000 if less than 60 years old and Rs 50,000 if parents are 60 years old or more.

  • D) For uninsured super senior citizens (80 years old or more) medical expenditure incurred up to Rs 50,000 shall be allowed

4. National Pension Scheme (NPS)

A tax exemption of Rs.1.5 lakh can be claimed on the employee’s and employer’s contribution towards the National Pension System (NPS). Tax benefits can be claimed under Section 80CCD(1), 80CCD(2), and 80CCD(1B) of the Income Tax Act.


A) 80CCD(1), which comes under Section 80C, covers self-contribution. Salaried employees can claim a maximum deduction of 10% of their salary, while self-employed individuals can claim up to 20% of their gross income.


B) 80CCD(2), which is also a part of Section 80C, covers the employer’s contribution towards NPS. This benefit cannot be claimed by self-employed individuals. The maximum amount that an individual is eligible for deduction is either the employer’s NPS contribution or 10% of basic salary plus Dearness Allowance (DA).


C) Under Section 80CCD(1B), individuals can claim an additional amount of Rs.50,000 for any other self-contributions as an NPS tax benefit.

Therefore, individuals can claim up to Rs.2 lakh as tax benefits under NPS.


5. Home Loans

A) Under Section 80C, you can claim a deduction up to ₹ 1.50 Lakh for the principal repayment done in the financial year.


B) Under Section 24B, you can claim a deduction for up to ₹ 2 Lakh for the accrual and payment of interest on the home loan.


C) Under Section 80EEA, you can claim a deduction for up to ₹ 1.50 Lakh for the interest payment of a home loan availed during the financial year.


D) Under Section 80EE, you can claim an additional deduction of up to ₹ 50,000 for the interest payment of the home loan, if you have availed home loan for an amount less than ₹ 35 Lakh and the value of the property is within ₹ 25 Lakh.


E) In the case of a joint home loan, each borrower can claim a deduction of principal repayment (section 80C) and interest payment (section 24b) if they are also the co-owners of the property.

 

4 Reasons to Invest in NPS | Deeva Ventures Pvt Ltd

4 Reasons to Invest in NPS

Here are some of the reasons that make NPS a go-to solution to retire rich while at the same time avail tax benefits.

 

Accumulate Wealth for Retirement

With NPS, you can create a corpus for retirement and secure a pension for yourself after retirement. 

 

You can withdraw up to 60% of the accumulated corpus at the age of retirement and utilize the remaining corpus to buy an annuity to receive a pension regularly.

 

Get Extra Tax Deduction of Rs 50,000

Your investments in NPS make you eligible to claim an additional tax deduction of up to Rs.50,000 under section 80 CCD(1B) over and above the tax benefits of Rs. 1.5 Lakh available under section 80C.

 

Earn Market-linked Returns

NPS provides you an opportunity to earn market-linked returns that beat inflation and help you to accumulate a relatively larger corpus for retirement.

 

Enjoy the Option to Rebalance the Portfolio

Your NPS portfolio gets rebalanced once every year wherein your allocations in equity shares are shifted to debt as your age increases.

 

NPS

4 Reasons to Invest in NPS

National Pension System (NPS)
Launched by the Government in 2004 and opened to the public in 2009, NPS is a voluntary retirement scheme. By investing in it, you can create a retirement corpus and also get a monthly pension for life after retirement.


It is regulated by Pension Fund Regulatory Development Authority or PFRDA, and any Indian national between the age of 18 and 65 can join it. 


Since it’s a retirement scheme, an investor can’t redeem his money before the age of 60. However, partial withdrawal is allowed in specific needs like children’s education.


Now let’s look at its tax benefit:
You can claim a deduction against your NPS investment only for investments done in Tier 1 account, so while investing do take care of this.


The Tax Benefits under Section 80CCD (1B)
This is an additional tax benefit given only to NPS investors. Under this section, you can claim tax deductions for your investments up to Rs 50, 0000. This is over and above the deduction that you can claim under Section 80C.


So, you can claim tax deduction up to Rs 2 lakh simply by investing in NPS – Rs 1.5 lakh under Section 80C and another Rs 50,000 under Section 80CCD (1B). That means if you fall under the tax bracket of 30 percent, you can save Rs 62,400 in taxes.


The Tax Benefits under Section 80C
NPS is one of the listed investment options in which you can invest and save tax under Section 80C. The deduction limit for this section is Rs. 1.5 lakhs, and you can invest the entire amount in NPS if you wish and claim the deduction.


The Tax Benefits under Section 80CCD (2)
This benefit can be availed on the contributions made by the employer; hence, this one is meant for the salaried individual and not self-employed. 


Government employees can claim 14 percent of their salary tax deduction under this section. Meanwhile, for private-sector employees, it is capped at 10 percent of their salary.


Let’s see the benefits of NPS through an example:
Suppose a corporate employee earns Rs 7 lakh as the basic salary and another Rs 3 lakh as Dearness Allowance. 


So he can claim Rs 1, 00,000 (10 percent of Basic + DA) on his employer’s contribution. Besides, if he adds the deductions under Section 80CCD (1B) and Section 80C, he can claim deductions up to Rs 3 lakh.


NPS Tax Deductions for a Salaried Individual

Basic Salary ₹ 7 lakh
DA ₹ 3 lakh
Deductions under 80C ₹ 1.5 lakh
Deductions under Section 80CCD (1B) ₹ 50,000
Deductions under Section 80CCD (2) (10% of Salary + DA) ₹ 1,00,000
The total deduction that can be claimed ₹ 3 lakh


The Tax benefits on returns of and maturity amount
Tax benefits of NPS don’t just end at the investment amount. As an investor, you don’t have to pay any tax on the returns or the maturity amount also. This kind of tax treatment is called EEE i.e. exempt-exempt-exempt. In India, this tax treatment is available only on a selected few financial products.


Conclusion
NPS with its tax benefits can help you reduce your taxable income by quite a bit. However, it shouldn’t be the only reason for you to invest in it. It is a great product to build a corpus for your retirement thanks to its low cost and flexibility. So invest for the right reason.