Don't Stress About Pensions: Discover Lesser-Known Benefits of NPS

Pensions: Despite the announcement of the Unified Pension Scheme, concerns about pensions remain. However, if you're planning for retirement, the National Pension System (NPS) can be a valuable tool. Even if you already have NPS, it offers substantial benefits not just for retirement but also during your younger years. Let’s explore how NPS can be advantageous for you.

Increased Tax Benefits

Investing in NPS provides significant tax benefits. Under Section 80CCD of the Income Tax Act, you can claim tax deductions on your NPS investments. This includes two sub-sections: 80CCD(1) and 80CCD(2), along with an additional section 80CCD(1B). You can get a tax deduction of up to 1.5 lakh under 80CCD(1) and an extra Rs. 50,000 under 80CCD(1B). Additionally, 80CCD(2) allows for further deductions on top of this amount.

Employer Contributions

Your employer's contributions to NPS also offer tax benefits. You can invest up to 10% of your basic salary and dearness allowance (DA) in NPS and receive tax deductions. For government employees, this contribution can be as high as 14%. Many companies offer NPS facilities, and you can use your company's HR services to invest in NPS and avail of these additional tax benefits.

Reduced Unnecessary Expenses

Investing in NPS helps secure your finances for retirement, as the money is locked in until you turn 60. Unlike other schemes with shorter lock-in periods, NPS ensures your savings are preserved for the long term. This prevents the temptation to use these funds for non-essential expenses like buying a car or house, which could increase financial stress in old age.

Tailored Risk and Return

NPS allows you to control the risk and return of your investments. You can decide how much of your money to invest in the stock market and how much to keep in safer, fixed-return instruments. Young investors can take higher risks for potentially greater returns, helping build a larger retirement corpus. As you age and your risk tolerance decreases, you can adjust your investments accordingly.

Also read:Unified Pension Scheme vs. Old Pension Scheme: Key Differences Explained

NPS is not just a tool for securing your retirement but also offers significant benefits during your working years. From tax savings and employer contributions to a disciplined approach to saving and customizable risk levels, NPS provides various advantages that can enhance both your present and future financial stability.