Tax Benefits Under NPS One Can Avail of

03 जुलाई 2019

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National Pension Scheme or NPS is a central government scheme for all those who want to save for their retirement days early on. So if your retirement is still some time to go and you are already planning to make arrangement for your golden days, the NPS is your ticket to achieving these goals. There are several benefits of the NPS scheme as it is a low risk scheme. The tax benefits that come with the NPS make it a great choice of investment. Here are some of the NPS tax benefits:

NPS tax benefit for individuals:

Any person subscribing to the NPS is eligible for a tax deduction of 10 % of his/ her gross income up to Rs1.5lakh under the section 80 CCD (1) of the Income Tax Act. In an exclusive tax saving benefit, you are also eligible for an additional deduction for investment up to Rs50,000 in NPS (Tier I account) under subsection 80CCD (1B). This exclusive benefit is over and above the deduction of up to Rs 1.5 lakh under section 80C. NPS tax benefits for individuals under corporate sector

You are eligible for an additional tax benefit if you have subscribed to NPS scheme under the corporate sector. This deduction is under the section 80CCD (2). Under this the employer’s NPS contribution up to 10% of salary (Basic + DA) is deductible from taxable income, without any monetary limit.

NPS tax benefits for corporates

Corporates making contribution towards employee’s NPS is deducted as business expense from their profit and loss account. So the employer’s contribution towards NPS up to 10% of salary (Basic + DA) can be deducted as NPS tax exemption.

NPS tax benefits on partial withdrawal

National pension scheme tax benefits is that you can partially withdraw funds from your NPS tier-I account .This benefit is available for specified purposes only. The amount withdrawn up to 25% of your contribution is exempt from tax.

NPS tax benefit on annuity purchase

If you invest funds in annuity, it is completely exempt from tax. Only the income from annuity received in the subsequent years is taxable.

NPS tax benefit on lump sum withdrawal

When you are 60 years old, if you withdraw the funds in lumpsum, maximum 60% of the corpus can be withdrawn from which 40% of the corpus is exempted from tax.

One of the biggest selling points for NPS is the additional tax benefits attached to the scheme. If you have a low appetite for risk and want to plan for your retirement days, invest in an NPS now. Click here to invest in an NPS tax saving scheme.

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Recurring Deposit Vs fixed deposit

Recurring Deposit V/s Fixed Deposit: 4 Differences
Today, maintaining a bank account has become a norm. You need to provide your bank account number on various occasions; like receiving the salary from employer or subsidy from the government under a scheme. And most people open either fixed deposits or recurring deposits.
There are several reasons why people confuse a recurring deposit and a fixed deposit. Their similar features and benefits like steady returns, safety of capital, and popularity as saving vehicles leave people confused and some of them are left asking, “What’s the difference?” between a recurring deposit and a fixed deposit.
Granted, both are great fixed income products, but here are a few major differences between the two that are worth knowing about, to make better informed choices between them-
What is a Fixed Deposit?
A Fixed Deposit is a saving instrument where you put a lump sum amount for a fixed period of time and earn a fixed rate of interest. On maturity you earn the principal invested along with the interest, which you can always reinvest! They are also called term deposits because you park money in them for a given tenure.
What is a Recurring Deposit?
Recurring deposit is a type of term deposit where the objective is to inculcate the habit of saving and the incentive is that you earn a fixed rate of interest on investing a fixed sum of money on a regular interval. Unlike an FD, where you invest a lump sum for a definite period of time and receive fixed returns, in RDs you are allowed to invest a fixed amount at regular intervals, like say on a monthly basis.
Maturity
When an FD matures, you receive the principal you invested along with the interest you earned, and when an RD matures, the depositor receives the total amount, which is the amount of money you invested on a regular basis along with the interest earned on it. Here due to the compounding effect, you may find, an FD earns more on maturity than an RD, but RD offers flexibility and is a good start if you want to start saving small, in the beginning of your investment journey.
Intent to save periodically or lump sum
Generally, depositors go for FDs when they have a lump sum amount of money to park in a savings instrument to earn a decent and stable return. But if they want to get into the habit of saving and earn interest income on small sized but regular savings, then RD is the way to go!
Taxation
Withdrawal
An early withdrawal of a fixed deposit can result in penalty. So, for example, if you put your fixed deposit for a five-year lock-in period, you cannot withdraw the money until it matures. Doing so may attract a penalty of 1 per cent. However, recurring deposits are the ideal investment platform in case you’re planning short-term goals. These include saving up for a down payment for your home, or paying for a child’s education.

Top 5 tax saving investment options

Paying taxes is a legal, ethical duty that every individual has to fulfil. The government uses your tax money towards the development and progress of the country. The government even offers some tax relief if one invests in certain instruments. However, most people tend not to follow a disciplined approach with regards to tax savings and investments. Either they begin investing towards the end of the financial year or they choose their investments to avail tax savings benefits. Both these methods of tax saving are wrong. The smart thing to do is to begin investing in the early months of the financial year. You can choose from the top 5 tax saving investment options to avail maximum benefits.
ELSS mutual funds
Specially designed for tax savings, Equity Linked Saving Scheme or ELSS mutual funds are considered one of the best tax saving investments. ELSS funds are market-linked products, which, though regarded as high-risk products, also offer higher returns. ELSS funds allow you to save taxes under Section 80C of the Income Tax Act of 1961. Also, ELSS funds are equity-linked products that come with a short lock-in period of 3 years. Moreover, ELSS investments can also be made through SIP or systematic investment plans, which allows you to spend a small, fixed, monthly amount as opposed to a lump-sum amount at one time.
Public Provident Fund
A favourite of the conservative investor, the PPF refers to the government issued, long-term savings scheme. Launched in 1968, the PPF tax saving scheme allows the investor to earn tax-free returns. Currently, you can earn 7.6% interest per annum on your PPF savings, and is especially beneficial for individuals of high-income slabs, paying 30.9% tax. Such individuals can earn taxable returns of approximately 11.04%. However, it is mandatory for one to deposit at least a minimum amount of ₹500 per annum, whereas the maximum savings per annum cannot exceed ₹1.5 lakhs. Also, the PPF scheme lasts for a minimum period of 15 years, and partial withdrawals can only be made after the 8th year of investment.
Unit Linked Insurance Plans
Regarded as hybrid products that provide both, protection and savings, Unit Linked Insurance Plans or ULIPs are regarded as great tax saving schemes, because they provide the investor with the much-needed life insurance policy, while also helping him invest in different market-linked assets, which help him meet his long-term goals. Most ULIPs come with 5 to 9 fund options, with variable asset allocation between equity and debt. While the duration of ULIPs is approximately 15-20 years, there is a minimum lock-in period of 5 years. Also, the fund value of an ongoing/matured policy is tax-free.
National Pension Scheme
One of the few tax savings schemes, which allow the investor to surpass the maximum ₹1 lakh limit of deduction, as set by Section 80C of the Income Tax Act; the National Pension Scheme or NPS is also ideal for tax saving investments. Under this scheme, the percentage of the investor’s basic salary (not exceeding 10%), as contributed by the employer towards the national pension scheme, is tax deductible. That said, the investor’s contribution towards NPS is still governed under Section 80 C, which allows you to surpass the ₹1 lakh limit.
Health insurance investments
Although not traditionally regarded as an investment for tax saving purposes, health insurance plans offer coverage that adds more value than any other form of investment. Apart from providing you security against unpredictable health scares, you also earn a tax deduction on health insurance plans, making them one of the best tax saving investments. One can avail a tax deduction of up to ₹15,000 on health insurance plans, where the upper limit on tax deduction for senior citizens is ₹20,000.
Keywords used
Best tax saving investments, tax saving investments, tax saving schemes, tax saving investment options
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