Tax Savings Through National Pension Scheme: PFRDA Newsletter

The following is a communication clarifying tax savings through the National Pension Scheme (NPS) from the Pension Fund Regulatory and Development Authority (PFRDA).  Click on the image to enlarge.  I am posting it purely by way of information because I have received several emails on the subject.  This is not a recommendation for NPS.  If you are considering using the NPS for saving tax or for your retirement, please do read the following:

Do Not Invest Rs. 50,000 in NPS For Saving Tax! 

National Pension Scheme (NPS): Do not invest unless you get tax benefits! 

National Pension Scheme (NPS): Returns generated by Pension Fund Managers

Performance of New Pension Scheme: Central Government Employee Subscriptions 

New Pension Scheme and Me

The PFRDA chairman writes, “it is important to save for retirement, but also effectively and efficiently”.

An effective and efficient retirement plan involves investing for retirement.

You can plan for your retirement with a lot more freedom, with lot less tax outgo and with a lot more returns (fingers crossed!) with a combination of equity mutual funds (or stocks) + PPF+ EPF. Do not invest in a product with poor liquidity and unclear taxation status (upon withdrawal).

Subscribers want clarity on the taxation angle and not the tax-saving  angle.  PFRDA is aware of this. Let us hope that their next newsletter will shed light on this.

This note clarifies that government employees can now invest separately in Tier 1. This was not possible earlier.  Not suggesting that you do it considering they have no control over the asset allocation. As of now they have only 15% equity exposure. Most of the folio has long-term GOI bonds.

NPS-tax-deduction


About the Author M Pattabiraman author of freefincal.comM. Pattabiraman is the co-author of two books: You can be rich too with goal based investing and Gamechanger. “Pattu” as he is popularly known, publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis, including a robo advisory template for use by beginners. Contact information: freefincal {at} Gmail {dot} com He conducts free money management sessions for corporates (see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints.

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Updated: August 5, 2016 — 5:13 pm

4 Comments

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  1. Hi,
    Yet another nice article.
    Just one clarification. For someone traced at 30% on Salaried income,

    If he invests 50000 in nps, and is able to get a return of say, 10%;cash outflow would be only 33000 due to savings on tax (said investment being exempt over and above 80c 1.5 lakhs) and actual return would be 15%. However principle for taxation is yet to be clarified.

    Kindly point out any errors in what I have written as I have been reading up multiple articles to get clarity on the same.

    Thanks in advance.

    Regards,
    George Mathews

  2. Hi,
    Yet another nice article.
    Just one clarification. For someone traced at 30% on Salaried income,

    If he invests 50000 in nps, and is able to get a return of say, 10%;cash outflow would be only 33000 due to savings on tax (said investment being exempt over and above 80c 1.5 lakhs) and actual return would be 15%. However principle for taxation is yet to be clarified.

    Kindly point out any errors in what I have written as I have been reading up multiple articles to get clarity on the same.

    Thanks in advance.

    Regards,
    George Mathews

  3. How about deferred annuity – say i retire in 10 years time, and start investing in NPS right now. Will the pension i get after I retire is taxable??

  4. How about deferred annuity – say i retire in 10 years time, and start investing in NPS right now. Will the pension i get after I retire is taxable??

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