The start of a financial year brings with it a slew of financial liabilities. Income tax planning is an important chore that should be done ahead of time. It aids an investor in maximizing the value of his or her assets. Experts say that tax and investment planning should be done jointly because a penny saved is a penny earned. People spend extensively on tax-saving choices under Section 80C, according to them, when developing an investment plan. There are, however, alternative options to consider. The National Pension System (NPS), which is a mix of debt and equity, is one such investment option.
Vinit Khandare, CEO and Founder of MyFunBazaar, commented on the income tax benefits for NPS account holders, saying, "An investment in NPS qualifies for an additional tax deduction of $50,000, an 'additional investment' in the investor's retirement fund, and has grown in popularity among tax planners and investors. Tax savings increase one's take-home pay, allowing the investor to invest in more tax-saving opportunities."
Vinit Khandare went on to say that NPS investors have a variety of fund managers and fund allocation options to choose from. When it comes to choosing a fund manager, he or she may conduct a quick review of each fund's past performance to assist the client in making a decision. If one anticipates a drop in performance after investing, it's simple to switch funds online in the middle.
Here are the top five reasons why you should use NPS in your income tax planning:
1-Tax savings of up to 2 lakhs in a single financial year: An income taxpayer can claim an income tax exemption on up to 2 lakh invested in an NPS account in a single financial year.
"Any individual who is an NPS subscriber is eligible for a tax credit up to Rs. 1.5 lac under Sec 80 C. Under sub-section 80CCD (1B), an extra deduction of up to Rs. 50,000 is available in NPS above and above the 80C bracket" says, Sujit Bangar, the founder of Taxbuddy.com.
2-A good substitute for EPF: With NPS, you not only save taxes, but you also get to enjoy the second half of your life — retirement. Because NPS returns are market-linked, it is a good alternative to EPF. If you're in your twenties or thirties, NPS can be a great way to save for retirement. The NPS system can provide a larger long-term return than the EPF.
3-Tax Free Maturity: "According to current tax laws, NPS investors can receive 60 percent of the corpus tax-free at maturity. For the remaining 40%, the investor must purchase an annuity; however, there is no tax due at the time of purchase. As a result, the withdrawal is completely tax-free "MyFundBazaar's Vinit Khandare declared so.
4-Investment pattern flexibility: "The ability to choose or change the investment pattern and fund management is available. This ensures that you can optimize returns based on your comfort level with various asset classes (equity, corporate bonds, government securities, and alternative assets), fund managers, and asset classes (equity, corporate bonds, government securities, and alternate assets) "Taxbuddy.com's Sujit Bangar said as much.
5-Long lock-in period: It may be tough for a young investor to consider or think about retirement, but this attitude may damage one's retirement age and the corpus - hence the long lock-in term transforms NPS into a wise retirement investment.
