Home > Money > Question
Need Expert Advice?Our Gurus Can Help
Mihir

Mihir Tanna  |880 Answers  |Ask -

Tax Expert - Answered on Sep 22, 2022

Mihir Ashok Tanna, who works with a well-known chartered accountancy firm in Mumbai, has more than 15 years of experience in direct taxation.
He handles various kinds of matters related to direct tax such as PAN/ TAN application; compliance including ITR, TDS return filing; issuance/ filing of statutory forms like Form 15CB, Form 61A, etc; application u/s 10(46); application for condonation of delay; application for lower/ nil TDS certificate; transfer pricing and study report; advisory/ opinion on direct tax matters; handling various income-tax notices; compounding application on show cause for TDS default; verification of books for TDS/ TCS/ equalisation levy compliance; application for pending income-tax demand and refund; charitable trust taxation and compliance; income-tax scrutiny and CIT(A) for all types of taxpayers including individuals, firms, LLPs, corporates, trusts, non-resident individuals and companies.
He regularly represents clients before the income tax authorities including the commissioner of income tax (appeal).... more
Pranabananda Question by Pranabananda on Sep 22, 2022Hindi
Listen
Money

Sir, I would be grateful if you could provide some clarifications regarding NPS. I am a salaried person. I am getting full tax benefit under 80C for PF and VPF. I am also getting benefit of Rs 50,000 by investing in Tier-I account of NPS. My employer has contributed Rs 2,45,941.40 in my NPS account in 2021-22.

Should I get tax benefit on my employer's contribution of Rs 2,45,941.40. Please answer.

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.

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
Money

You may like to see similar questions and answers below

Ramalingam

Ramalingam Kalirajan  |5092 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 17, 2024

Asked by Anonymous - Jun 16, 2024Hindi
Listen
Money
Hello sir, My current epf is 10k monthly and 30k annually in ppf. Thus cealing my 80c to 1.5lakhs. I am thinking of starting an NPS of 10k as well for my retirement. Will this 10k of nps be taxable as as i have already capped my 80c i know i have 50k more deductable in 80ccd for nps. But since total will be 120k annually thus wanted to understand if these will be taxable? And will it effect my return after 30 years. As of now i am 30 years old
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

..Read more

Ramalingam

Ramalingam Kalirajan  |5092 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 15, 2024

Asked by Anonymous - Jul 02, 2024Hindi
Money
Hi sir , I'm 26 years old , recently we were informed at Organisation that they be debiting NPS from My basic pay and special allowance say some 10% of the amount which they said be eligible for tax benefits however I opted for personal NPS only as I get good benefits in different sections. Please suggest me which one be good option. I opted for personal NPS based on my needs because company anyway deducts my basic and special allowance and credits that amount but I'm doing on own based on my personal needs. Please suggest be best option.
Ans: Let’s delve into your query about the National Pension System (NPS) and evaluate the best option for you, while keeping in mind the guidelines you’ve mentioned. I'll ensure the discussion is comprehensive and detailed, covering various aspects to help you make an informed decision.

Understanding NPS and Its Benefits
The National Pension System (NPS) is a government-backed retirement savings scheme. It encourages systematic savings for retirement. The scheme provides tax benefits under Section 80C and Section 80CCD of the Income Tax Act.

Tax Benefits of NPS
NPS offers dual tax benefits. Contributions up to Rs 1.5 lakh are eligible for deduction under Section 80C. An additional Rs 50,000 is available under Section 80CCD(1B). This makes NPS an attractive option for tax savings.

Employer Contribution to NPS
When your employer contributes to NPS, it’s deductible under Section 80CCD(2). This doesn’t form part of the Rs 1.5 lakh limit under Section 80C. This can be a significant tax-saving tool.

Personal NPS vs. Corporate NPS
Now, let's compare your personal NPS contributions versus the corporate NPS contributions.

Control Over Investments
With a personal NPS, you have control over the choice of fund managers. This allows you to tailor your investment strategy based on your risk appetite and financial goals. Corporate NPS contributions are managed by the employer’s chosen fund managers, limiting your control.

Flexibility in Contributions
A personal NPS allows flexibility in contributions. You can invest any amount at any time. Corporate NPS, on the other hand, typically involves fixed contributions deducted from your salary.

Evaluating the Options
Let’s assess which option might be more suitable for you.

Suitability Based on Investment Goals
If you prefer control over your investments and want flexibility, personal NPS could be a better fit. It allows you to choose fund managers and switch between equity and debt funds based on market conditions.

Tax Efficiency
Both personal and corporate NPS offer tax benefits. However, corporate NPS has an edge due to the employer’s contribution not forming part of the Rs 1.5 lakh limit. If your goal is maximum tax savings, consider leveraging both personal and corporate NPS.

Advantages of Personal NPS
Let’s explore the benefits of maintaining a personal NPS account.

Personalized Investment Strategy
You can select fund managers based on their performance. This helps in achieving higher returns compared to a corporate NPS, where you have limited choice.

Flexible Contributions
You can adjust your contributions based on your financial situation. This flexibility can be crucial in managing cash flows, especially during financial crunches.

Portability
Personal NPS accounts are portable. You can continue the same account even if you change jobs. This ensures continuity in your retirement planning.

Advantages of Corporate NPS
Now, let’s look at the benefits of corporate NPS.

Employer’s Contribution
The biggest advantage is the employer’s contribution, which provides additional tax benefits. This can significantly enhance your retirement corpus.

Lower Administrative Hassle
Corporate NPS involves less administrative hassle for employees. The employer manages the paperwork, making it convenient for you.

Supplementary Retirement Savings
Corporate NPS can be a supplementary savings tool. It adds to your overall retirement corpus without impacting your monthly budget significantly.

Balancing Both Options
A balanced approach might be the best strategy. You can leverage the benefits of both personal and corporate NPS.

Maximizing Tax Benefits
By contributing to both personal and corporate NPS, you can maximize your tax benefits under Section 80C and 80CCD. This can lead to substantial tax savings.

Diversified Retirement Portfolio
Having both personal and corporate NPS accounts allows for a diversified retirement portfolio. This diversification can help in mitigating risks and achieving better returns.

Professional Guidance and Monitoring
It’s crucial to monitor your NPS investments regularly. Consulting with a Certified Financial Planner (CFP) can help you make informed decisions and adjust your strategy based on market conditions.

Disadvantages of Direct Mutual Funds
Now, let’s discuss why direct funds might not be the best option for you.

Lack of Professional Guidance
Direct funds require you to make investment decisions without professional guidance. This can be risky if you lack the expertise in managing investments.

Time-Consuming
Managing direct funds is time-consuming. You need to constantly monitor the market and rebalance your portfolio, which can be challenging if you have a busy schedule.

Potential for Lower Returns
Without professional guidance, there is a higher risk of making suboptimal investment decisions. This can lead to lower returns compared to investing through regular funds with the help of a CFP.

Benefits of Regular Mutual Funds
Investing through regular funds with the assistance of a CFP has several advantages.

Expert Management
CFPs have the expertise to manage your investments effectively. They can help you choose the right funds and adjust your portfolio based on market conditions.

Comprehensive Financial Planning
CFPs offer comprehensive financial planning services. They can help you align your NPS investments with your overall financial goals and risk appetite.

Convenience
Investing through regular funds is convenient. Your CFP handles the administrative tasks, allowing you to focus on other important aspects of your life.

Final Insights
To summarize, both personal and corporate NPS have their advantages. Personal NPS offers control and flexibility, while corporate NPS provides additional tax benefits and lower administrative hassle.

A balanced approach, leveraging the benefits of both personal and corporate NPS, can be the most effective strategy. This way, you can maximize tax savings and build a diversified retirement corpus.

It’s also essential to seek professional guidance from a CFP to manage your investments effectively. Regular monitoring and adjusting your strategy based on market conditions can help you achieve your retirement goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Latest Questions
Nayagam P

Nayagam P P  |2230 Answers  |Ask -

Career Counsellor - Answered on Jul 21, 2024

Asked by Anonymous - Jul 20, 2024Hindi
Listen
Career
Sir, i have completed my bachelors (BCA) in India in an engineering college and wishes to pursue my masters in a foreign country.My family is'nt well off so iam looking into schlorships.can you suggest some courses with good scope. Also which countries are best for IT field that provide great schlorship oppurtunities.
Ans: As far as Scholarships for Abroad Universities are concerned, you should have good scores from the entrance tests (whichever will be applicable according to the University's admission criteria), good past academic records, your extra and co-curricular activities, additional certifications, your Statement of Purpose (SOP), Letter of Recommendation etc. Those who have gained work experience of a minimum 2-3 years after graduation get preference in admission.

And most of the Universities do not provide 100% scholarships. You will have to bear some expenses (depends upon which University / College you get admission into & what all expenses only it will cover?) .

As you have mentioned that your parents NOT well-off financially, it is suggested to work for 2-3 years, earn some money and also gain work experience, then go for further education abroad.

Before approaching any Professional Abroad Education Consultant, do a thorough research about the Countries/Universities/Programs, shortlist those which you think will be most suitable, apply to 5-6 top Univerities offering Scholarships and finalize one best University/College for you.

All the BEST for Your Bright Future.

To know more on ‘ Careers | Education | Jobs’, ask / Follow Us here in RediffGURUS.

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

Close  

You haven't logged in yet. To ask a question, Please Log in below
Login

A verification OTP will be sent to this
Mobile Number / Email

Enter OTP
A 6 digit code has been sent to

Resend OTP in120seconds

Dear User, You have not registered yet. Please register by filling the fields below to get expert answers from our Gurus
Sign up

By signing up, you agree to our
Terms & Conditions and Privacy Policy

Already have an account?

Enter OTP
A 6 digit code has been sent to Mobile

Resend OTP in120seconds

x