Government putting tax on your retirement kitty! What should You do??




On February 1, like every year the finance minister has declared the budget and the great middle class was waiting for what goes in their favour! But Alas! May be there are  tax relief for the people over 75 years of age, the decision to put tax on interest income of VPF over contribution of 2.5 lakhs have put them in worries. Most of the salaried middle class loves the extra deduction over their mandatory EPF deduction which goes to the Voluntary Provident Fund and gives them a assured return of 8 to 8.5% which is much higher than traditional fds or PPF. Till now they were sleeping peacefully at night while having the idea of retiring with a great corpus at the age of 60. But this taxation is going to dig a hole in that dream. So what is the solution?


The Solution is NPS. National Pension System. A Pension Plan managed by the PFRDA, the same organization that manages your PF. Just like VPF you can put whatever amount  you like in NPS and you will get a return of 9-10% on average when you retire. Now the biggest benefit of NPS is it gives another 50k tax relief over the conventional 1.5lakh 80CCD(1), under section 80CCD(1B), making your total tax relief of  2 Lakh per year which was not available on VPF. And to assure you the interest income is tax free.

The process is also hassle free. Just visit your bank with your KYC documents and the rest will be taken care of by them.


But there is a little catch. At the time of your retirement you can withdraw maximum of 60% from your NPS corpus and the rest 40% has to be invested in some pension fund. You will get life long pension from that after which the 40% will be given to your nominees. But that is what pension plan for isn't it? 


So stop worrying and sit with pen and paper and start calculating how much you want to put in VPF and how much you want to Put in NPS to get the maximum tax benefit and live a great retired life. 



©Deep

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