My wife is housewife, and has no other income. To secure her future, from my salary, if I contribute every year around 2Lac into NPS tier-1 account of my wife, will there be any tax implication to her or me, whenever she gets pension from NPS when she becomes 60 years old.

Ans: I understand that amount of PF and VPF is sufficient to claim deduction of Rs 1,50,000 u/s 80C and deduction of Rs 50,000 is taken under 80CCD (i.e. upper limit of deduction specified under both sections are taken); you will not be eligible for deduction for employers contribution.

Ans: Dear Prasanna,

Firstly, congratulations on your upcoming retirement. It's a significant milestone, and I'm here to help you navigate the financial aspects of it.

Now, coming to your question about transferring your pension benefits to your wife. As per the Income Tax laws in India, any gift received from specified relatives, such as a spouse, is not treated as income. Therefore, it is fully exempt from income tax. So, if you decide to give your pension benefits to your wife as a one-time gift, there won't be any immediate tax implications for her.

However, there's an important aspect to consider. While the gift itself is tax-free, any income generated from this gift (for example, if your wife invests this amount and earns interest or dividends) would be clubbed with the income of the giver, i.e., you, and taxed accordingly. This is known as the clubbing of income.

In conclusion, gifting your pension benefits to your wife could be a good idea if the aim is to let her manage the funds. However, the income generated from the gifted amount would still be taxable in your hands.

I hope this clarifies your query.

Best,
Hardik

Ans: Whenever any asset is transferred to spouse without consideration and spouse earn income from it, income is clubbed in the hands of transferrer. Thus, in given case income will be clubbed in the hands of husband.

Ans: You contribute Rs 10,000 monthly to EPF and Rs 30,000 annually to PPF. This totals Rs 1.5 lakhs under Section 80C.

Considering NPS Contribution
You plan to start contributing Rs 10,000 monthly to NPS for retirement. This would amount to Rs 1.2 lakhs annually.

Tax Implications
Section 80C and 80CCD
Your contributions under Section 80C are already maxed out at Rs 1.5 lakhs. However, Section 80CCD(1B) allows an additional Rs 50,000 deduction specifically for NPS contributions.

Taxability of NPS Contribution
The Rs 1.2 lakhs NPS contribution is partly deductible. Rs 50,000 can be claimed under Section 80CCD(1B). The remaining Rs 70,000 will be taxable.

Effect on Return
Long-Term Growth Potential
NPS has a mix of equity and debt investments. This helps in balanced growth. Over 30 years, NPS can grow significantly due to compounding.

Withdrawal Rules
At retirement, 60% of NPS corpus is tax-free. The remaining 40% must be used to purchase an annuity. The annuity income is taxable.

Advantages of NPS
Additional Tax Benefits
NPS offers an extra Rs 50,000 deduction under Section 80CCD(1B). This is over and above the Rs 1.5 lakhs under Section 80C.

Long-Term Growth
NPS investments benefit from compounding. The mix of equity and debt can provide balanced returns.

Retirement Security
NPS provides a steady income post-retirement through annuities.

Disadvantages of NPS
Taxability of Annuity
The annuity income from NPS is taxable. This can reduce your net returns in retirement.

Withdrawal Restrictions
NPS has strict withdrawal rules. Partial withdrawals are allowed only for specific purposes before retirement.

Final Insights
Your current EPF and PPF contributions maximize Section 80C benefits. Starting an NPS contribution of Rs 10,000 monthly is a good idea. You get an additional Rs 50,000 deduction under Section 80CCD(1B). However, the remaining Rs 70,000 will be taxable. NPS has long-term growth potential but comes with some tax implications. Plan your investments considering both the benefits and restrictions of NPS.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

Ans: Your wife is 31 years old and contributes Rs. 25,000 monthly to her NPS. She will retire at 65. Let’s evaluate if NPS alone can support your retirement.

Understanding NPS
Benefits of NPS
Tax Benefits: NPS contributions provide tax deductions.
Market-Linked Returns: NPS invests in equity and debt.
Low Cost: NPS has low fund management charges.
Expected Returns
Equity Allocation: Equity in NPS can offer 10-12% returns.
Debt Allocation: Debt allocation may yield 6-8%.
Overall Returns: Expect 8-10% returns annually.
Projected NPS Corpus
Accumulation Phase
Regular Contributions: Rs. 25,000 monthly until retirement.
Compounded Growth: Funds grow due to compounding.
Estimation: Use conservative growth rate for projections.
Retirement Income
Annuity Purchase
Mandatory Annuity: 40% of NPS corpus goes into an annuity.
Regular Pension: Annuity provides a monthly pension.
Lump Sum Withdrawal
60% Withdrawal: The remaining 60% can be withdrawn.
Tax-Free: This withdrawal is tax-free.
Diversification Strategy
Beyond NPS
PPF: Continue contributions for safe returns.
EPF: Maintain EPF for steady growth.
Mutual Funds: Diversify with equity and debt funds.
Insurance: Ensure adequate health and life coverage.
Expected Retirement Needs
Income Requirements
Inflation Adjustment: Account for rising costs.
Healthcare: Allocate funds for medical expenses.
Lifestyle: Maintain a comfortable lifestyle post-retirement.
Calculating Retirement Corpus
Corpus Size
Monthly Needs: Rs. 50,000 per month post-retirement.
Inflation-Adjusted: Needs will increase with inflation.
Life Expectancy: Plan for 20-25 years post-retirement.
Income Sources
NPS Pension: Regular income from the annuity.
Lump Sum: Withdrawn amount can be invested.
Other Investments: Income from PPF, EPF, and mutual funds.
Final Insights
NPS Alone: NPS is good but not sufficient alone.
Diversify: Invest in PPF, EPF, and mutual funds.
Plan for Inflation: Ensure corpus adjusts for inflation.
Regular Review: Monitor and adjust investments.
Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in