The tax benefits that this product offers is yet to be realised by potential subscribers into NPS.
The National Pension System (NPS) is being administered and regulated by Pension Fund Regulatory and Development Authority (PFRDA) set up under PFRDA Act, 2013. NPS is considered as a good retirement planning option for individuals of all income groups.
It offers a number of benefits, including tax benefits, portability, flexibility, and a government guarantee.
NPS is a market linked, defined contribution product. Under NPS, a unique Permanent Retirement Account Number (PRAN) is generated and maintained by the Central Recordkeeping Agency (CRA) for individual subscribers.
Kurian Jose, chief executive officer, Tata Pension Management, said, in India, the concept of planning retirement continues to be at a very nascent stage; with most people not realising the need to save for a retired future until it is too late.
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Retirement Planning In India
Jose underlined that a reason for the same could be the expectation of support from their children as well as relatively higher returns from bank fixed deposits in the past. This is getting even more critical with increasing life spans post-retirement from work.
“We believe that for one to live a dignified and comfortable life in their latter days, it is imperative to plan for a retirement corpus with the help of a sound financial plan. Also, the relationship between a parent and child should be based on emotional needs and not affected by financial dependence,” Jose added.
Jose highlighted that NPS is a defined contribution pension scheme. which enables an individual to plan for his retirement while being employed. With regular systematic investments by contributing individually or through salary deduction.
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Is NPS Going To Lead Retirement Planning Options?
Jose said it is only a question of time before NPS gets popularised because of the advantages of investing into the same.
It is a one-of-a-kind retirement planning solution with characteristics of flexible asset allocation (catering to different risk profiles), professional fund management, tax benefits during contribution, build up phase as well upon withdrawal (upto 60% of NPS corpus), assured Pension system inbuilt and low management fee borne by the investor.
NPS provides the opportunity to subscribers to generate market linked returns on their retirement savings. Jose added that equity markets over the long period of time have historically generated higher inflation adjusted returns than any other traditional debt asset classes despite their inherent gyrations and volatility.
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NPS Tax Benefit
Contributions to NPS are eligible for tax deductions under Section 80CCD(1B) of the Income Tax Act, 1961. Subscribers can also claim an additional deduction of up to Rs. 50,000 under Section 80CCD(1).
Jose added that the tax benefits that this product offers is yet to be realised by potential subscribers into NPS. Despite all these advantages, the product is yet to become a pull product from subscribers. NPS as a savings product provides subscribers exempt-exempt-exempt tax benefit experience.
