Union Budget 2021 Expectations: Subscribers of the National Pension System (NPS) are hunting forward to the Budget 2021 announcements by Finance Minister Nirmala Sitharaman on February 1, 2021.
Currently, NPS comes with tax added benefits beneath many sections of the Income Tax Act, 1961, but subscribers are hunting forward to a tax advantage even on the quantity deposited in the Tier-II account of NPS.
The purpose getting such tax advantage is currently obtainable to government personnel and the government could extend it to the non-government personnel as properly.
If a government employee contributes towards Tier-II of NPS, the tax advantage of Section 80C for deduction up to Rs 1.50 lakh will be obtainable to them, supplied there is a lock-in period of 3 years. “The government has already tried out a tax saving option in NPS Tier II for government employees last year with a shorter lock-in of 3 years. The government may open it up for the general public also, maybe with an option for a higher equity allocation,” says Col Sanjeev Govila (Retd), a SEBI Registered Investment Advisor (RIA), and CEO, Hum Fauji Initiatives, a economic preparing firm which caters exclusively to armed forces officers and their households.
The revenue invested in the National Pension System (NPS) is locked-in for the lengthy term as NPS is a retirement-focused scheme. On joining NPS, the Tier- I account gets opened automatically in which one has hold depositing at least a minimum quantity each and every year till age 60. On retirement, at age 60, the NPS subscriber could withdraw an quantity of up to 60 per cent of the corpus when pension is paid on the balance 40 per cent. In addition, NPS has an solution obtainable to the NPS subscriber to deposit funds without the need of any lock-in as properly. This solution is in the kind of NPS Tier – II account which enables one to make withdrawal anytime without the need of lock-in.
A central government employee contributing to NPS can have 3 accounts to operate:
1. Tier-I: Mandatory account
2. Tier-II: Freely withdrawal with no tax advantage
3. Tier-II: Tax advantage with a lock-in period of 3 years
As far as the investment selection and pattern of allocation is concerned, no investment selection is supplied to the employee. The asset class allocation is as follows:
- Equity: 10 to 25 per cent
- Debt: Up to 90 per cent
- Cash/Money Market/Liquid funds: Up to 5 per cent
By extending tax advantage to NPS Tier -II, taxpayers will get an further solution to save tax and develop revenue. For non-government NPS subscribers, the investments have to be created into the NPS Tier I account in order to avail deduction from earnings and save tax. NPS has two accounts – Tier I, and Tier II account – when the former is the default account that one has on opening NPS account into which the initial contribution goes into. The Tier II is, having said that, an optional account for non-government subscribers and one can in addition open it to park savings in it as it has no lock-in period.