NPS: The National Pension System (NPS) presents a favorable option for retirement planning. Contributions made to this scheme are returned to you as a pension upon retirement. You can initiate this scheme with a minimum investment of Rs 1,000.
Benefits of NPS account
Investing in the NPS allows you to save substantial amounts in taxes. According to available information, the NPS comprises two types of accounts: Tier 1 and Tier 2. Funds in the Tier 1 account are accessible only after retirement, while the Tier 2 account allows for withdrawals in case of emergencies. Under the NPS, your investments are diversified across various asset classes, including equities, corporate bonds, and government bonds, which helps mitigate risk.
However, it is important to note that the returns are subject to market fluctuations. If you wish to close your NPS account, the government has established certain conditions. The lock-in period for the NPS ranges from 5 to 10 years, meaning your funds will remain in the account for a minimum of 5 years. Once this lock-in period concludes, you may close the scheme; however, if you are an employed individual, you can only do so after 10 years.
How can you save substantial amounts in taxes?
By investing in the NPS, you can claim a tax deduction of up to Rs 1.5 lakh under Section 80 CCE of the Income Tax Act. Furthermore, under Section 80 CCD (1), individuals can claim a tax deduction of 10 percent on their income. If your investment exceeds Rs 50,000, you can still claim a tax deduction of Rs 1.5 lakh. Additionally, by participating in the NPS Vatsalya Yojana, you can claim tax deductions of up to Rs 50,000 under Section 80 CCD (1B). Government employees are eligible for tax deductions of up to 14 percent.