Income tax: Why you can’t miss NPS during tax planning. Top 5 reasons

  • June 5, 2022
  • CA Chandan Agarwal's Office

Income tax calculator: NPS qualifies for an additional tax deduction of ₹50,000, an ‘additional investment’ in the investor’s retirement fund

Income tax calculator: Beginning of a financial year comes with many money-related tasks. Income tax planning is one such important task that one should do in advance. It helps an investor maximise the value of one’s wealth. According to experts, tax and investment should be planned together because a penny saved is a penny gained. They said that while making an investment plan, people invest heavily in tax saving options under Section 80C. However, there are other options that should look at. NPS or National Pension System is one such investment option, which is a mix of debt and equity investment.

On income tax benefits for NPS account holders, Vinit Khandare, CEO & Founder at MyFunBazaar said, “Having risen in popularity among tax planners and investors, an investment in NPS qualifies for an additional tax deduction of ₹50,000, an ‘additional investment’ in the investor’s retirement fund. Tax savings improve one’s take-home pay significantly allowing the investor to invest in additional tax-saving options.”

Vinit Khandare went on to add that the NPS investor can cherry pick from a variety of fund managers and fund allocation options. When it boils down to a fund manager selection, he/she may rapidly look into each fund’s prior performance to assist the investor in making a decision. Once an investment has been made, it’s simple to swap funds online in the middle if one foresees a dip in performance.

Here we list out top 5 reasons as to you should not miss out NPS during income tax planning:

1] Tax saving on up to ₹2 lakh investment: An income tax payer can claim income tax exemption on up to ₹2 lakh investment in NPS account in single financial year.

“Any individual who is Subscriber of NPS can claim tax benefit in the overall ceiling of Rs. 1.5 lac under Sec 80 C. An additional deduction, over and above 80C bracket, is availed up to Rs. 50,000 in NPS under sub-section 80CCD (1B),” said Sujit Bangar, Founder, Taxbuddy.com.

2] Good alternative to EPF: With NPS, you not only save taxes but also enjoy second innings of your life – retirement. NPS is a good alternative to EPF, especially because returns are market-linked. If you are in 20’s and 30’s, NPS can be very good investment option for retirement planning. In long term, one can expect higher than EPF return from the NPS scheme.

3] Tax free maturity: “As an NPS investor one can take 60% of the corpus tax-free at maturity, according to current tax laws. The investor must purchase an annuity for the remaining 40%; however, there is no tax due at the time of purchase. As a result, the withdrawal is tax-free in its entirety,” said Vinit Khandare of MyFundBazaar.

4] Flexibility in investment pattern: “One can have the flexibility to select or change the investment pattern and fund manager. This ensures that you can optimize returns as per your comfort with various asset class (Equity, Corporate Bonds, Government Securities and Alternate Assets) and fund managers,” said Sujit Bangar of Taxbuddy.com.

5] Long lock-in period: As a young investor, it may be difficult to consider retirement or think about it, but this attitude may jeopardize one’s retirement age and corpus – hence the long lock-in period turns NPS into a smart retirement investment.

Source: https://www.livemint.com/money/personal-finance/income-tax-why-you-can-t-miss-nps-during-tax-planning-top-5-reasons-11654311224432.html

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