National Pension Scheme
The Budget 2015-16 has brought a lot of good news for both Tax payers and National Pension Scheme.The scheme which was launched few years back was not been able to gain such an attention of Indian investors as other small saving schemes. The main reason remains the lack of fixed returns and no tax exemptions. But this time finance ministers brought cheers to all faces with a tax deduction of Rs.50,000 over and above 1.50 lacs under 80C. Other small saving schemes like PPF, Sukanya Samriddhi Account, KVP or other post office schemes are covered under section 80c only.
What is National Pension Scheme (NPS)
It is a pension fund meant for corporate employees where the corporate entities contributes on behalf of their employee. The main aim is to have a pension the employees after their retirement. This leads to a robust retirement plan and thus a security of income at the old age as per market driven returns.
Returns/ Tax Benefits
The Scheme does not guarantee or specify any return on the investments. The returns are market driven and are generated as per portfolio selection of an account holder. Since the fund invest in asset classes like Government Securities, Bonds and Equities, it gives returns just like any other mutual fund scheme. The advantage here is that one can choose his /her ow portfolio bifurcation as per his risk perception and still enjoy a least fund management fees.
Additionally, one can also avail a benefit of tax deduction under Section 80CCD (1B) for Rs. 50000 invested in a year over and above Rs. 1.50 lacs in section 80C. This means a person covered under a tax bracket of 30% will save Rs.15,450 towards tax payments.
NPS is taxable as per EET(exempt-exempt-tax) system. As per EET, the contributions are eligible for tax deduction, returns are tax exempt however withdrawal are taxable. I feel this is right for any pension fund as they are not meant to be withdrawn but for a regular income.
Extremely Low Fund Management Fees
Since, it has already build a huge corpus, the leading fund management companies bid their lowest rates. The fund management fees is as low as 0.0009% per annum as compared to 0.5% to 2% in a normal mutual funds. You can also choose or switch your fund manager once a year.These fund managers are:
- Regulated by PFRDA, a regulator for the pension sector in India
- Transparency in investment norms, constant monitoring
- Regular performance review of Fund Managers.
Their is a minimum contribution of Rs.6000 per annum however no limit on the maximum contribution.this amount may be deposited in one or more transactions. The maximum cash deposit allowed in the scheme stand at Rs. 25,000 per transaction. Their should be minimum one transaction in the account every year. In case of failure to make any deposit in the entire year, a penalty of Rs. 100 per year will be levied.
So in all, along a lucrative tax deduction, I feel it will suddenly catch an eye of investors. The scheme is an ideal fit for the people who are looking for retirement plan and are investing mutual funds or fixed deposits for the same. Not only, here they will bear a lower cost but also avail the tax benefit while contributing and maintaining this fund.