NPS is a government scheme, which is made for investments. NPS means National Pension System, which is for those who want to accumulate retirement funds in a safe way. Under this scheme, you get a maximum tax benefit of up to two lakh rupees. Out of which Rs 1.5 lakh is included under Income Tax section 80CCD (1) and an additional Rs 50,000 under section 80CCD (1B).
Investment in NPS is safe. Through this, investors who want retirement funds can start their own business. By investing in NPS, you can accumulate a huge fund. If you want, you can avail pension of Rs 1.5 lakh every month after retirement. In this, we will know how much investment will be made and what are the benefits etc.
How much will be invested every month
If you start your career at the age of 25, then this may be the right time for you to start preparing for retirement. If you invest Rs 7000 for 25 years, then after 25 years you will have invested a total of Rs 29,40,000. If you add a return of 12 percent to this investment, then a fund of about Rs 4.54 crore will be accumulated. 40 percent of this fund can be used to buy annuity. At least 40% of the total fund in NPS should be set aside to buy annuity to ensure regular pension.
Step Analysis
The fund required to get a monthly pension of Rs 1.5 lakh at annuity rate of 6% will be calculated. 40% of the NPS fund will be used to buy annuity. If a 25-year-old person wants to ensure a monthly pension of Rs 1.5 lakh through NPS after retirement, he has to invest Rs 12,000 for 40 years. He will get a return of 10% during the deposit period and the annuity rate at the time of retirement will be 6%.
Tax benefits are available in NPS
Employees enrolled in NPS have certain tax benefits on their individual contributions.
- Under Section 80 CCD(1), 10% of salary is allowed as tax deduction, up to a total limit of Rs 1.5 lakh.
- An additional tax deduction of up to Rs 50,000 can also be availed under Section 80 CCD(1B), which is over and above the overall limit of Section 80 CCE.
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NPS is a market-linked scheme that promotes retirement savings. It is a great way to grow your retirement fund and diversify your investments. Its robust tax and investment benefits make NPS an excellent choice. Its cost-efficient structure and compounding benefits make it an attractive option for building a secure retirement fund.
There are two types of NPS accounts
This account acts as a permanent retirement fund where regular contributions are collected by the subscriber and/or their employer and invested as per the chosen scheme or fund manager.
This is a voluntary and withdrawable option which is only opened when you have an active account. Withdrawals from this account can be made at your will. This plan helps you build a large fund and also ensures regular pension, making it easier to handle expenses after retirement when you do not have an income.