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Is NPS Suitable For Your Tax-Saving And Retirement Goal?


While there are a number of investment options to entice you to save on tax, you need to look at a holistic aspect of the investment i.e. whether or not besides the tax benefit, the investment option will go a long way in meeting your set retirement goals.

Is NPS Suitable For Your Tax-Saving And Retirement Goal?

Defined contribution voluntary scheme NPS comes with its own set of pros and cons that needs to be surely weighed in before yielding into the instrument:

1. Cost advantage: A very nominal cost for managing NPS fund is the top most advantage offered to its investors. For an investment worth, Rs. 10 lakh, charges levied are just Rs. 100 i.e. only 0.01%. So, with very less charges, your return component is not compromised for much.

2. Partial tax free status advantage: Now up to 60% of the balance or maturity proceeds can be withdrawn at the age of 60 as lump sum amount, the remaining is compulsorily annuitized i.e. balance is used to fund the annuity (pension) after retirement.

In the Budget 2016, partially tax-exemption was granted to the maturity corpus with 40% being tax free and the remaining shall attract tax making the instrument a mix of

EET (60%) and EEE (40%).

Furthermore, now the proposal is to make the entire or remaining 60% to be tax exempt

Who should NPS as a retirement cum tax savings product?

So, the answer is as simple as those who do not want to actively manage their debt and equity portfolio and want a retirement savings product can take to NPS or national pension scheme. Also, NPS offers tax advantage or savings under different sections of the Income Tax which you need to familiarize yourself with to completely benefit from the investment.

Story first published: Thursday, February 21, 2019, 13:25 [IST]
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