National Pension System:Whenever you think about your retirement, what kind of things come to your mind? Not only this, a good pension can be arranged on retirement and also a huge fund in the bank account. If you get Rs 1 crore in lump sum on retirement and also arrange a pension of Rs 1.25 lakh every month, then your life will be tension free in old age. Now you must be wondering how this arrangement will be made. This is possible, but for this you will have to do financial planning in time. National Pension System can help you in this work.
Power of Compounding: Every year’s delay in investment reduces the power of compounding, there will be a difference of lakhs in returns.
What is National Pension System?
National Pension System i.e. NPS is a Central Government scheme being run keeping retirement in mind. This is a social security initiative of the Central Government. It was launched by the Central Government on 1 January 2004 for government employees. From the year 2009 onwards, it was also opened for private employees (Who can invest in NPS). NRIs are also eligible for this. It is necessary to invest in NPS for at least 20 years. After opening the account, one has to contribute till the age of 60 years or till maturity.
How much return are you getting?
The responsibility of investing the amount deposited in NPS is given to the pension fund managers registered by the Pension Fund Regulatory and Development Authority (PFRDA). They invest your investments in equity, government securities and non-government securities as well as fixed income instruments. A part of NPS goes into equity, hence guaranteed returns (NPS Return) cannot be obtained in this scheme. However, it can still give higher returns than other traditional long term investments like PPF. If we look at the return history of NPS, till now it has given 9% to 12% annual returns.
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How to get pension and funds
Age to start investing: 25 years
Prescribed age for retirement: 60 years
Total investment period: 35 years
Everyday savings: Rs 250
Monthly savings: Rs 7500
Investment in NPS every month: Rs 7500
Total investment in 35 years: Rs 31,35,000
Estimated return on investment: 10 percent per annum
Total corpus in 35 years: Rs 2,87,12,076 (2.8 crores)
Here, if you deposit Rs 7500 every month in NPS for 35 years and assume the expected return of 10 percent, then the corpus created after 35 years will be Rs 2.8 crore.
Investment in annuity plan: 65 percent
Estimated return in annuity: 8 percent
Lump Sum Value: Rs 1,00,49,227 (1 crore)
Monthly pension: Rs 1,24,419 (about Rs 1.25 lakh)
Tax benefit in NPS
By investing money in NPS, any investor can avail tax deduction of up to Rs 1.5 lakh under Section 80CCD (1) of Income Tax.
Special investors in the NPS instrument get the benefit of additional tax deduction of Rs 50,000 under section 80CCD (1B) of Income Tax. Such investors can avail tax deduction up to Rs 2 lakh. This is different from the tax deduction of up to Rs 1.5 lakh available on investment under Section 80C.
EEE i.e. tax free scheme
In EEE category, investors get the benefit of tax exemption on investment amount, return (interest) and maturity. Subscribers can claim tax deduction by investing in NPS. The second exemption, i.e. a virtual tax exemption without any tax deduction, applies to investments earning returns. Withdrawals up to 60 percent are tax free. The remaining 40 percent investment in annuity plans also gets the benefit of tax exemption.
