Let us walk through a scenario together—you are a thorough professional with a bright career. You have some savings for rainy days too, but what happens when your savings get used up and you are not able to earn anymore?
Retirement plans all over the world are prevalent in different forms. People invest in government and private pension schemes to have a sense of security and a retirement plan to rely on. Several pension schemes are offered in India as well, offering different plans of payment and several benefits.
What is National Pension System
The National Pension System (NPS) is a low-cost retirement option sponsored by the government. Any Indian citizen between the ages of 18 and 70 may choose to participate in the NPS program. It began in the year 2004 and became accessible to everyone in the year 2009. The Pension Fund Regulatory and Development Authority (PFRDA) is in charge of overseeing NPS .
The Pension Fund Regulatory and Development Authority (PFRDA), which was established by an Act of the Indian Parliament, administers and regulates the voluntary defined-contribution National Pension System (NPS).
The decision by the Indian government to discontinue defined benefit pensions for all new hires after January 1, 2004, marked the beginning of the NPS. Although the program was initially primarily intended for government workers, it became available to all Indian citizens in 2009. The government of India is attempting to establish a pensioned society using NPS. The NPS is currently easily accessible and tax-efficient under Sections 80CCC and 80CCD. An individual may fund his retirement account through the NPS.
This system has a variety of benefits for the public; some of them are listed below.
benefits Of National Pension System
- Secure Retirement: Investing in NPS can help you save up money in a systematic way to ensure a financially secure and wealthy retirement.
- Upfront Tax Benefits: When you invest in NPS, self investment up to 50k & 10% of basic through corporate NPS is completely Tax Exempt.
- Zero Tax on Maturity: Surprising but true, under the E-E-E category Zero LTCG Tax is due on maturity.
- High Returns: Market linked investment theme gives potential for high growth in the range of 8.5% to 12% CAGR.
- Least Expensive: The NPS is regarded as the least expensive pension plan in the world. The lowest fees include administrative costs and fund management fees.
- Easy to Use: All a potential applicant needs to do is open an account with one of the POPs offered by all Indian Head Post Offices and obtain a Permanent Retirement Account Number (PRAN)
- Flexible Options: The applicant has a range of investment options, including pension funds, to choose from. They can also pick Auto or Active choice for asset allocation.
- Accessible: The applicant can manage an account from any location in the nation, pay contributions through any POP-SP, regardless of the POP-SP branch with which the applicant is registered, and also contribute through eNPS, even if he or she changes cities, jobs, etc. If the subscriber secures employment, the account can be moved to any other sector, such as the public sector or the corporate model.
To summarize, financial security is very important at all stages of life, and a suitable pension system can prove a great support when you look for financial security post-retirement. The National Pension System is a great step introduced by the Indian government in this regard; it offers comprehensive pension support with flexible payment options.
NPS is a wonderful substitute for other investment options existing that offer an additional tax benefit. Certain tax benefits available under the National Pension Scheme that are worth mentioning are:
- Up to Rs. 1,50,000/ – u/s 80CCE (individual tax limit)
- Up to Rs. 50,000/ – u/s 80CCD(1B) (individual tax limit)
- Up to 10% of Basic Salary – u/s 80CCD(2) (Through Employer contribution)
As a result of NPS, you have a regular income source throughout your life, as the retirement corpus covers your regular expenses even after retirement.
Investing early brings a lot of advantages. For example, you start investing at the age of 25 with a monthly SIP of Rs. 7000 for 35 years of tenure. There will be a corpus of Rs. 7.75 crore. A monthly SIP of Rs. 25, 000 for 20 years will result in a corpus of Rs. 3.25 crores if you start investing at 40.
Invest today for a better tomorrow!
