NPS Scheme: Having a regular income after retirement is crucial for everyone. If you have a stable pension source, you don’t have to make any major lifestyle changes. However, it’s essential to develop an investment plan during your working life. In this regard, the National Pension System (NPS) can be an excellent option, providing you with a fixed monthly pension after retirement. Let’s learn more about this scheme.
Learn What is NPS
NPS is a retirement scheme of the Government of India, administered by the Public Sector Undertakings (PFRDA). This scheme allows investors to invest in asset classes such as equities, corporate bonds, and government bonds. NPS has two types of accounts: Tier 1 and Tier 2. Tier 1 is the main pension account, while Tier 2 is a self-savings account that you can use as needed.
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Tax Saving Benefits of NPS
Investors investing in NPS also benefit from special income tax exemptions. Under Section 80C of the Income Tax Act, investors can avail a tax deduction of up to 10 percent of their gross income, or a maximum of Rs 1.5 lakh. Additionally, an additional deduction of Rs 50,000 is available under Section 80CCD (1B). This means you can save up to Rs 2 lakh in tax.
Monthly Pension of Rs 50,000
For example, you are 30 years old and invest Rs 11,000 in NPS every month. You continue investing for 30 years, until you reach the age of 60. If your investment earns an average annual return of 10 percent, you will have a pension corpus of approximately Rs 39.6 lakh by the age of 60. Based on this amount, you can receive a monthly pension corpus of approximately Rs 50,000.
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Benefits of Investing in NPS
NPS is a government-backed scheme, making it a safe investment. Long-term investments earn compound interest, helping you grow your retirement corpus rapidly. Furthermore, the scheme is transparent and low-cost.