NPS investment for tax savings

[the_dark_knight]

Hi,
We all know under section 80ccd , if we invest worth 50k in NPS account, then that would be tax free.
So if one falls under 30% tax slab, there is a straight savings of Rs 15k.

But the question is, the NPS investment still advisable or recommended considering that only partially we can withdraw the amount at retirement and the rest is received as pension.

Just posting this thread to discuss why (if someone opted for extra 50k deduction through NPS) should one opt for NPS. Basically the pros and cons of investing to come at a conclusion. Also, I am expecting that we will get a different view to this since this portal deals in credit cards mainly, so can we benefit via investing through credit cards etc.

 

[Thangarajan D]

Hi,
We all know under section 80ccd , if we invest worth 50k in NPS account, then that would be tax free.
So if one falls under 30% tax slab, there is a straight savings of Rs 15k.

But the question is, the NPS investment still advisable or recommended considering that only partially we can withdraw the amount at retirement and the rest is received as pension.

Just posting this thread to discuss why (if someone opted for extra 50k deduction through NPS) should one opt for NPS. Basically the pros and cons of investing to come at a conclusion. Also, I am expecting that we will get a different view to this since this portal deals in credit cards mainly, so can we benefit via investing through credit cards etc.

I started from pandemic period, i just paid 50 k per month in tire1 through infinia card. I opened the tire 2 account also. I selected the 75%equity in tire1,100% in tire2.
Nearly 20%increased in tire1.
It's a good investment.

 

[prtraj]

As per my understanding investing just 50k every year won't make you rich and bring wealth during your retirement. It's not worth it. Yes it gives you peace of mind but practically it won't be of much help in your retirement days. I would suggest invest more in equity directly through stocks and MFs. It will grow more profoundly compared to NPS.

 

[prtraj]

But it is a good instrument if you can invest more than 2 lacs every year in it along with investing 3-5 lacs in equity. Depends on your income and risk capacity.

 

[Aditya12]

As per my understanding investing just 50k every year won't make you rich and bring wealth during your retirement. It's not worth it.

I’d agree with your statement but even if you’re getting 50k worth of equity at 35k a year, is it still not a decent investment?

 

[prtraj]

I’d agree with your statement but even if you’re getting 50k worth of equity at 35k a year, is it still not a decent investment?

My analogy is not about NPS being a bad investment for retirement. My point was w.r.t the amount being invested. NPS is a good option given your investment amount is more. Because unlike MFs and Equity, we can't withdraw NPS 100% since there is this annuity concept.

 

[curios_mind_huh]

My analogy is not about NPS being a bad investment for retirement. My point was w.r.t the amount being invested. NPS is a good option given your investment amount is more. Because unlike MFs and Equity, we can't withdraw NPS 100% since there is this annuity concept.

The point OP trying to make here is: If he is going to invest a large amount (say 5 lakhs) in equity every year, Is it okay to invest 50k of it into NPS given that he solidly gets 15k back in tax returns every year rather than put the same 50k into direct equity like MFs/stocks?

I'd say it's worthwhile investing 50k under 80CCD(1B) given that it actually provides him a net 15k benefit over New tax regime. NPS is actually much better than EPF because you can actually get to modify/re-balance equity portion of investment up to 75%, which results in a higher return rate than EPF. Even if it's a marginal 2% over EPF, it adds up to a whole lot at the time of your retirement.

 

[sousnake]

My analogy is not about NPS being a bad investment for retirement. My point was w.r.t the amount being invested. NPS is a good option given your investment amount is more. Because unlike MFs and Equity, we can't withdraw NPS 100% since there is this annuity concept.

If you withdraw 100% of MFs & Equity, you have to pay taxes above 1L profit. It wouldn't get best way to withdraw them. So you won't withdraw them 100% anyway, correct? NPS annuity is taxable based on income & I am assuming at that point person may not have significant income.

 

[prtraj]

If you withdraw 100% of MFs & Equity, you have to pay taxes above 1L profit. It wouldn't get best way to withdraw them. So you won't withdraw them 100% anyway, correct? NPS annuity is taxable based on income & I am assuming at that point person may not have significant income.

I am not telling it is a bad investment per se. I am also not concerned about the taxation part above 1L. I agree on the taxation part but what I am saying is I see few drawbacks mentioned below:

1. Lock in period is 60 years. Although I am aware we can withdraw some part of it after 3 or 5 years post opening NPS account.
2. Only 60% can be withdrawn as lumpsum and rest 40% as annuity. Returns on annuity might be low comparatively. And maybe annuity income is taxable.
3. Not so easy premature exit process. Also at 60 who knows who would be alive and who is supposed to knock at govt doors on your behalf for getting back this money.

NPS should be considered as a pension instrument and not as an wealth generating investment instrument.

 

[the_dark_knight]

Not so easy premature exit process. Also at 60 who knows who would be alive and who is supposed to knock at govt doors on your behalf for getting back this money.

This is exactly what concerns me and made me away from investing in nps

 

[AlgoTrader]

There are 2 NPS sections to save tax, so tax saving limit is just not 50K

 

[srikant]

I'm getting captcha mismatch when trying to make a contribution. I tried both Firefox and Safari on Mac. I have cookies enabled too, like it asks. What could be the problem?

 

[prtraj]

I'm getting captcha mismatch when trying to make a contribution. I tried both Firefox and Safari on Mac. I have cookies enabled too, like it asks. What could be the problem?

Try making the contribution using NPS own mobile application.

 

[sid16]

An SIP of around 4200 per month in NPS Tier 1 will get you around 50k investment every year and also you don't need to time the market.

The best part about NPS which everyone ignored is the automatic asset allocation. It does asset allocation for us practically free of cost. And ultimately, view it as a retirement + pension instrument. Don't touch NPS and PPF money till retirement. Keep other liquid instruments for backup.

 

[Random123]

I'm getting captcha mismatch when trying to make a contribution. I tried both Firefox and Safari on Mac. I have cookies enabled too, like it asks. What could be the problem?

Had the same issue, worked fine in chrome in mac. Maybe you can try that once.

 

[infinia_finally]

This is a topic that I have highly debated with friends.

As someone mentioned, straight off 30% tax gains (and more if falling under surcharge tiers) is a win. Rest, stock market will take care in the long run.

Last time they made NPS super taxable, there were literally riots in Bangalore and they had to revert their decision.

So what is not guaranteed is the ever changing tax structures. There is a demand to make annuities tax free. Not sure if govt will do that.

On another note, 80CCD(1b) deduction is not applicable in new regime. And new regime matrix is here. So without the tax benefit, I won't put that extra 50k in NPS. But that's because my principle is that I am ready to lock in money until 60 only if I get instant tax benefit. So individuals should make a judgement call based on this.

 

[Zacobite]

As per my understanding investing just 50k every year won't make you rich and bring wealth during your retirement. It's not worth it. Yes it gives you peace of mind but practically it won't be of much help in your retirement days. I would suggest invest more in equity directly through stocks and MFs. It will grow more profoundly compared to NPS.

nps has equity options + tax friendly.. and cheapest in terms if chgs.. tier 2 no lock in.. tier 1 is to invest for retirement.. v clear goals
.its a great option if you are disciplined and committed to invest long term for retirement.. same / better returns than mfs due to lower chgs and upfront tax benefits for tier 1. And if your company offers nps then mindblowing tax benefits as even the contribution becomes tax free upto 10%'of basic

 

[Zacobite]

There are 2 NPS sections to save tax, so tax saving limit is just not 50K

yes great option for the disciplined long term investor

 

[its_karan]

In short:

• It's best if the employer pays irrespective of the regime, 80CCD(2).
• Up to 5 lakh of the total corpus has no 60-40 rule.
• Based on past backtested data:
  • Make a mix of equity and debt.
    • Not using equity and using 100% of debt is also a good idea.
    • In that way, this will be your fixed income corpus.
• For equity, use HDFC Pension Fund Managers.
• For debt, preferable government bonds, use LIC Pension Fund Managers.
• For 50,000 pa, it's a no-brainer just for tax savings alone.
• Pay using a Rewarding CC and pay that with a rewarding DC to maximize savings.( Maybe SC Smart and HDFC Easyshop Platinum combo)
• Again, NPS is an evolving product even if more than a decade has passed by. New features are being introduced now and then, so what may happen when you get 60, you don't know now.

Again Do Your Own Research

 

[the_dark_knight]

In short:

• It's best if the employer pays irrespective of the regime, 80CCD(2).
• Up to 5 lakh of the total corpus has no 60-40 rule.
• Based on past backtested data:
  • Make a mix of equity and debt.
    • Not using equity and using 100% of debt is also a good idea.
    • In that way, this will be your fixed income corpus.
• For equity, use HDFC Pension Fund Managers.
• For debt, preferable government bonds, use LIC Pension Fund Managers.
• For 50,000 pa, it's a no-brainer just for tax savings alone.
• Pay using a Rewarding CC and pay that with a rewarding DC to maximize savings.( Maybe SC Smart and HDFC Easyshop Platinum combo)
• Again, NPS is an evolving product even if more than a decade has passed by. New features are being introduced now and then, so what may happen when you get 60, you don't know now.

Again Do Your Own Research

Why standard chartered smart cc and not amex credit cards?
If you had any amex cc, you wouldn't have suggested any other cc for nps payments