National Pension Scheme still does not attract the investment corpus that it should indeed because of the benefits it offers in sunset years. One of the factor attributed for its low popularity is the lower commission on sale of the product. Nonetheless, when compared to other assets in the category it almost stands out with a couple of lucrative features:
1. Low cost as well as compounding benefit:
NPS on a global scale is the cheapest pension investment product i.e. owing to economies of scale in operations of the system architecture.
Further the accumulated corpus over the years provides compounding benefit which adds to the subscriber's delight.
Subscribers enrolling to the scheme are provided the flexibility to choose among the asset class i.e. active or auto choice and also the pension fund manager. Investment option or asset class can be switched twice a year while the PF can be changed once in a year. NPS instrument works similar to a mutual fund.
3. Provides assured annuity amount in sunset years:
Though the 40% annuity part that is to be put in low-yielding options is not appealing, investors need to heed the idea that it assures a guaranteed amount or income stream for your retirement years, which is even more purposeful if you are not disciplined or knowledgeable enough to reap out gains in a similar fashion.
4. Taxation Benefit :
Similar to PPF and EPF, it is an EEE product i.e. neither contribution nor interest and maturity proceeds from the investment are liable to tax.
Then it also provides additional tax benefits i.e.:
On self contribution: These are eligible for tax deduction u/s 80 CCD (1) upto 10% of basic + DA or up to 20% of Gross Income for self-employed within the overall ceiling of Rs. 1.50 Lacs u/s 80 CCE
On employer's contribution: These are eligible for deduction u/s 80CCD(2) while computing total income of the employee. However, the amount of deduction is restricted to 14% of salary in case of Central Govt. employees and 10% in any other employees (otherwise 20% of gross total income).
In addition for investment in NPS, there is additional benefit under section 80CCD 1(B) subject to a maximum investment of Rs. 50000. Thus, investing in NPS, a subscriber can get a tax benefit of Rs 2 lakh (1,50,000+50,000).
5. Portability and online access:
The account can be opened accessed online and also offers portability in the sense that the account can be transferred across employers upon change in employment or on relocation with the help of the unique PRAN or permanent retirement account number that is allotted to the NPS subscriber.