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Have you ever noticed the fascinating world of ants, where strategic planning and survival instincts reign supreme? As the summer sun graces the land, these diligent creatures gather their precious sustenance, ensuring a bountiful supply for the unforgiving winter months. By wisely stockpiling their provisions, they cleverly avoid the perils of the harsh climate, safeguarding their lives and securing their future. Are you wondering now how you would secure your future after retirement? Let’s explore it.
The NPS, or National Pension System, also known as the National Pension Scheme, is a voluntary retirement plan designed to empower you in creating a retirement corpus. This is not all; there are numerous NPS tax benefits.
Let’s have a look at NPS tax benefits
- Tax exemption under Section 80C – In an NPS Tier-I account, contributions are entitled to a tax deduction under Section 80C, and a deduction of up to Rs. 1.5 lakh per year is allowed. You can lower your taxable income and, as a result, the amount of tax you owe.
- Additional deduction under Section 80CCD (1B): In addition to the Section 80C benefit, Section 80CCD (1B) offers an exclusive deduction of up to Rs. 50,000. Since this deduction only applies to NPS contributions, it is even more alluring for people who want to save the most money possible on taxes.
- Contribution of the employer: If you have a job and your employer contributes to your NPS account, this contribution will not come under your taxable income. It can minimise your taxable income, lowering your tax liability.
- Tax-free withdrawals: You can take a lump sum withdrawal from your NPS corpus when you retire, and up to 60% of the corpus is tax-free with this lump sum withdrawal. This lump-sum withdrawal is tax-free up to 60% of the total corpus. The remaining 40% must be used to purchase an annuity, which provides a regular pension and is also eligible for tax benefits.
NPS Tax treatment at maturity
Although NPS benefits can reduce taxes during the accumulation phase, it’s critical to comprehend how taxes are handled when an NPS matures:
Lumpsum withdrawal: 60% of your NPS corpus is tax-free when you choose to withdraw it at maturity. At the time of purchase, the remaining 40% of the annuity is also tax-exempt, but the pension you receive from it is subject to tax based on your applicable tax bracket.
Annuity payout: Your periodic annuity pension is regarded as part of your income and is taxed accordingly. The tax impact may be manageable, though, because this income is typically received in retirement, when your overall income may be lower.
Conclusion
Anyone who wants to start planning for retirement early and has a low tolerance for risk should consider the NPS. It goes without saying that having a steady pension (income) in your golden years will be a blessing, especially for those who leave private-sector employment. As an NPS subscriber, you can avail yourself of many tax benefits while investing. All you need to do is plan your retirement and set financial goals. NPS tax deductions can help you in your second innings towards a financially secure future
