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Retirement is inevitable for every employee. They start looking for better retirement plans to have a financially secure future. Here, NPS can play a vital role in giving them a piece of mind during their golden years. So, if you are wondering, why choose NPS as your pension plan in India? Then, read this blog till the end.
National Pension System —An Introduction
The National Pension System, also known as the National Pension Scheme in India, was introduced by the Government of India in 2004. Earlier, it was only meant for public sector employees, but later it was available for every citizen of India, except for people working in the armed forces. It comes with various features; let’s have a look at them first.
National Pension System—Features
- Voluntary: NPS is a voluntary investment plan. It allows you to choose how much you would want to invest as per your retirement plans.
- Diversification: NPS invests in a range of asset classes, such as equity, corporate bonds, government securities, and AIFs.
- PFRDA Regulated: The Pension Fund Regulatory and Development Authority regulates the NPS, ensuring transparency of your investments and potential returns.
- Tax Benefits: NPS comes with certain tax benefits under Section 80 (C) and 80 CCD (1B) of up to ₹1.5 lakhs and ₹50,000, respectively. A subscriber can get both of the benefits.
NPS Scheme – Why Choose it for Retirement Planning?
NPS offers several benefits that make it an ideal choice for retirement savings. Here are the top reasons to include NPS in your retirement planning:
- Tax Benefits: The most attractive reason to invest in NPS is its tax benefits. As per Section 80C of the Income Tax Act, you are eligible to claim deductions of up to ₹1.5 lakhs on your investment in the Tier-1 account. There is an additional deduction of ₹50,000 under Section 80CCD. All these tax benefits make your taxable income lower, and you pay less tax in the long term.
- Control Over Investments: NPS offers you the flexibility to choose how your contributions are invested. You have the flexibility to invest across asset classes of equities, government securities, corporate bonds, and alternative funds of investment. You can structure your portfolio as per your risk appetite and investment objectives and thus be able to maximise returns while managing risks.
- Regulated: The NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), a government body that ensures the safety and growth of your investments. This makes NPS a trustworthy option among other retirement plans.
- Low-Cost Plan: NPS has low management charges, which are between 0.03% to 0.09%. Lower charges mean that a larger portion of your contribution is invested towards your retirement corpus. Eventually, helping you create potential wealth
- Flexible and Portable: NPS provides great flexibility when it comes to withdrawals. You can withdraw partially in case of emergencies like medical bills, education fees, or buying a house. Also, the portability option enables you to operate your NPS account from anywhere in India, so your retirement savings are always available whenever and wherever you require them.
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Final Thoughts
NPS is one of the best retirement plans in India, as it not only offers tax benefits but also enables you to build a retirement corpus over time, providing a regular pension after retirement. Additionally, it is advisable to consult a professional financial expert before embarking on your journey.
