NPS IS NOW EEE... Invest NOW!

In the recent ruling by the government of india, the NPS has been made exempt exempt exempt( EEE) from the previous EET ( taxable when you exit the program).

This has been a major ask from all people and finally took a good step for employees and also for itself by moving to this method.

Earlier the model was at the time of closure

40% annuity
40% tax free
20% taxable

So 20% earlier which was taxable will now not be taxable!

New rules

40% annuity
60% tax free

This was a major issues for people to move to NPS vs a epf or a ppf.

Now with the power of equity kicking in over a long term , people will be much safer from a retirement perspective as they safe in NPS vs that of EPF.

Go ahead.. invest in NPS. The government has made it much more beneficial for you to have a safer more financial sound retirement that before.

Its just simplefinancialsense !

Nps is 2lakh crore + and growing

The government push to drive utilization of NPS seems to be yielding significant results ( I know because they also come to my organization and did a full push to convert people to join..  and I did).

As per some figures I read, the amount has almost doubled and number of subscribers has gone up by 70% +.

Now there are some significant benefits of NPS.. the biggest being the fact that one can invest in equity vs only the debt that epfo does ( or the max of 15%). This ensures a better return for the employee as well as lower subsidy for the government .

Second big thing for the employee is that they can get full tax benefit of upto 10% of their basic over and above the 2lakh of 80cc benefit.. This is big. ( 1.5lakh plus to 50k nps benefit)

Of course there are some things which are different from the epfo like the EET regime of NPS and the requirement of the pension annuity with limited choices ( though the govt has brought in all the big names) .

One should opt for the NPS to save tax and get an equity exposure for their retirement planning .

It's simplefinancialsense!

Is NPS worth it

Mi I really don't have the full answer as of now but here are some of the information that I have gathered across the media and other financial planners.

Before the new budget by Arun Jaitly there was no tax incentives for investing into the NPS.  Hence the question never arose.  However the question with is it worth it now needs to be answered because of the Rs 50,000 tax benefit one can get by investing only in  NPS. Hence someone in the top tax bracket can now save around the Rs 15000 per annum.

Here are some plus points on the NPS.

1. Tax deduction now exists
2. Unlike the ppf the NPS invests in the stock market and hence the returns as compared to ppf should be better in the long term
3. One can invest upto 50% into the stock market using this route.  50% is the maximum.  The balance amount will be in debt funds.
4. One can invest in small amount multiple times a year (there is a fee to invest which needs to be looked at)

THE CONS

yeah now the cons.  And they Really are quite significant.

1. The big one.  The fund amount is taxable at maturity!!  Hence 60% of the value which you will get will be taxed at the rate at which you are.  So imagine you having to pay 30% tax rate at maturity.  That's heavy!!

This is the biggest flaw in the overall picture.  The make or break.  Imagine even if you are at 50%equity you don't have any long term tax saving. 

This may change over the time..  But if it doesn't it will be a big negative as compared to the ppf Avenue or even anything in mutual funds.  Basically all of the tax benefits and more go away as your fund value grows

2. The equity investment actually mirrors the index.  Hence if the index grows then so will your money.  On a long term that will grow..  But it leaves no flexibility to the fund managers on investment options

So I haven't fully been convinced that it is going to be a good option.  But since this is applicable in the next financial year we still have time to decide.

If anyone of you has a few thoughts it would be great to receive them.

This one isn't very simplefinancialsense