Want to save tax? NPS just got more attractive for you…

National Pension Scheme (NPS) has not been a very popular investment option so far.

Besides it being tax inefficient until recently, it lacked a push from the distribution fraternity due to its low incentive model. In addition, there was only a 50% participation allowed as maximum towards equity.

The Aadhar based e-KYC and e-sign gave a philip to the online distribution and we hope that this momentum would continue (currently Aadhar based KYC and registration has been suspended and so is the e-sign).

On December 06, 2018, the union cabinet decided that the entire 60% of the value which can be withdrawn at the age of 60 will be tax-exempt.

Previously only 40% of the accumulated corpus utilised for the purchase of annuity was tax-exempt and the balance was taxable.

Union cabinet’s recent decision will put NPS on a similar footing to PPF in terms of taxability. The additional benefit will be that now mutual fund investments have a 10% long-term capital gains tax for equity oriented investments and for debt oriented schemes the taxation is 20% post-indexation. For NPS investors this would be Nil. Given that upto ₹ 50,000 is allowed as a deduction u/s 80CCD this can give a good booster to investment in NPS.

Moreover,  under Tier-II account, the deduction can now be availed of under section 80C on similar lines of ELSS funds with a lock-in of 3 years. With a tax differential of 10%, this could be a superior investment alternative.

The only drawback of NPS is, one can get only upto 75% equity exposure subject to the age limits. Under Tier-II account, the corpus can be withdrawn anytime after 3 years and that’s not subject to the restrictions of Tier I investments.

Ideally for investors who do not want a 100% equity exposure, this could again be a good option for investment.

Still 75% equity exposure might be good enough to enhance returns over long term. In addition, the funds have a mandate to invest in stocks upto market capitalisation of Rs. 5,000 crores which as per the latest list available on AMFI website would translate to a basket approximately 370 stocks.

NPS has become an attractive investment proposition to build a corpus for retirement. You may consider allocating at least Rs 50,000 to it.

Disclaimer:

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company.

We do not individually or collectively hold 1% or more of the securities of the company.

We do not have any other material conflict of interest in the company.

We do not act as a market maker in securities of the company.

We do not have any directorships or other material relationships with the company.

We do not have any personal interests in the securities of the company.

We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships.

We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.