NPS Update: Want pension of Rs 1 lakh from NPS, know how much will have to be invested..
National Pension System: In working years i.e. when you are in a job, you can live your life as per your choice. Because during that time you have a regular income. But have you thought about what kind of problems can arise if there is no regular income after retirement? Many people are not able to think of this in time, due to which many types of problems arise after retirement.
For this reason, financial advisors advise that it is very important to do retirement planning on time. If you are also planning to invest for retirement, then the National Pension System (NPS) can help you with this.
What is the National Pension System-
The National Pension System (NPS) is a voluntary and long-term investment plan for retirement, which comes under the purview of the Pension Fund Regulatory and Development Authority (PFRDA) and the Central Government. This is the retirement savings scheme of the government. The Central Government launched it on 1 January 2004.
This scheme is necessary for all government employees joining the job after this date. From 2009 onwards it was opened for private employees also. This pension scheme can be joined only from the age of 18 years. It is necessary to invest in NPS for at least 20 years. After opening the account, one has to contribute till the age of 60 years or till maturity.
The responsibility of investing the amount deposited in NPS is given to the pension fund managers registered by PFRDA. They invest your investments in equity, government securities, and non-government securities as well as fixed-income instruments. There is a facility to open two types of accounts in the National Pension System (NPS). In this, a Tier-1 account is a pension account. Whereas a Tier-2 account is a Voluntary Savings Account. NPS subscribers who have a Tier-1 account can open a Tier-2 account.
How much return are you getting?
A part of NPS goes into equity, hence guaranteed returns cannot be found in this scheme. However, it can still give higher returns than other traditional long-term investments like PPF. If we look at the return history of NPS, till now it has given 8% to 12% annual returns. In NPS, you are also given the option to change your fund manager if you are not satisfied with the performance of the fund.
NPS: How to make Rs 1 lakh pension-
Age to start investing in NPS: 30 years
Monthly investment in NPS: Rs 10 thousand
Total investment in 30 years: Rs 36 lakh
Estimated return on investment: 10 percent per annum
Total corpus after 30 years: Rs 2,27,93,253 (2.28 crore)
Note- Suppose someone has joined the scheme at the age of 30 and started investing Rs 10,000 every month. If the estimated return on his investment is 10 percent annually, then after 30 years the total pension wealth will be around Rs 2.28 crore. If it is necessary to invest at least 40 percent in an annuity plan. We have calculated here at 55 percent.
Investment in annuity plan: 55 percent
Annuity return: 10 percent
Lump Sum Value: Rs 1,02,56,964 (1.02 crore)
Monthly Pension: Rs 1,04,469 (Rs 1 lakh)
What tax benefits are available?
Contributions up to the limit of Rs 1.5 lakh for Tier I investments under section 80CCD (1) are eligible for tax deduction under section 80C. Whereas in addition to the deduction under section 80CCD 1(B), customers are allowed a deduction of up to Rs 50,000 for Tier I contributions. Under section 80CCD (2), an employer's contribution towards Tier I investment is eligible for a deduction of up to 14 percent for Central Government contributions and 10 per cent for others. This deduction exceeds the deduction limit applicable under section 80C.
Rules for withdrawal after retirement-
Currently, one can withdraw up to 60 per cent of the total corpus as a lump sum, with the remaining 40 per cent going into an annuity plan. Under the new NPS guidelines, if the total corpus is Rs 5 lakh or less, subscribers can withdraw the entire amount without purchasing an annuity plan. These withdrawals are also tax-free. Although withdrawals are tax-free, annuity income is taxable depending on the bracket. If your annuity is worth Rs 4 lakh, it will be taxed based on your tax bracket.
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