How Does NPS Help Indians Lead A Dignified Life?

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NPS Scheme

According to a report by the RBI committee, most Indians rely on their children for financial support post-retirement. Or they receive rental income from real estate, interest from fixed-return investments, or both. The report also suggested loosening the regulations for investing in pension schemes such as the National Pension System. But what exactly is this scheme, and how can it help Indians lead a dignified life? Let’s find out!

What is the NPS?

India’s NPS scheme is a long-term voluntary retirement investment option administered by the Central Government and the Pension Fund Regulatory and Development Authority. It is based on the unique Permanent Retirement Account Number assigned to each subscriber. All Indian citizens are eligible for this pension program, including those working in the public, private, and unorganized sectors. 

The plan encourages individuals to make periodic contributions to a pension account, from which they can withdraw a certain amount after retirement. After that, you’ll continue to receive the remaining sum as a monthly pension. The program also has tax advantages under Sections 80C and 80CCD and is transferable between jobs and locations. 

Benefits 

Tax Deduction

Self-contribution, which is covered by Section 80CCD and is a subset of Section 80C, allows employees to claim 10% dedication of their salary. Self-employed people, on the other hand, can claim 20% of their gross income. The employer’s NPS contribution is covered by section 80CCD(2), but self-employed taxpayers cannot use it. The maximum amount eligible for deduction is the highest of the following: 

  • the actual NPS contribution by the employer, total gross income, 
  • 10% of Basic + Dearness allowance (DA)

An additional self-contribution (up to Rs. 50,000) may be claimed as NPS benefits under section 80CCD(1B). 

Higher Returns

A portion of the NPS is allocated to equities. These stocks and funds offer higher returns than traditional tax-saving investments such as Pension Provident Funds. Over the last decade, the NPS scheme has delivered 9% to 15% returns. Additionally, you can change fund managers if you are dissatisfied with the fund’s performance.

Lower Investments

The minimum deposit required to open a Tier 1 and a Tier 2 NPS account is Rs. 500 and Rs. 1000, respectively. Investors can deposit cash, cheque, cash, or demand draft. The account holder can then contribute a minimum of Rs. 500 per contribution or Rs. 1000 annually for Tier 1 accounts. In contrast, the minimum contribution for Tier 2 accounts is Rs. 250.Retirement planning is like raising a sapling. 

It takes time for the seedling to develop into a tree and for you to enjoy all its advantages. The NPS is an investment plan that provides a regular pension during your retirement years. Essentially, at the age of 60, you can withdraw 60% of the corpus, but the remaining 40% must be used to purchase an annuity. This annuity helps you generate a consistent income after you retire.

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