Every one of us who has reached nearer to the age of retirement is interested in living a happy retired life. Towards this proper plans are to be made and worked out perfectly so that you don’t feel the pinch in your way of living as planned earlier. Saying this is easy and doing or implementing this is a difficult one. You must put in your efforts in advance and work out things which are needed by you and build the resources which will be handy in your retirement age.
The following lines will talk about earning a decent amount even after retirement to take good care of your health and wealth and continue to have a sound mind and a sound body. We can see the opportunities which are available for a decent living during old age. In this context by old age I mean people who have reached the age of sixty and above. We will see all the avenues available in the Indian context as I am an Indian living in India.
If we look at the options available for earning continued income we can come across many avenues Viz. Pension scheme (a form of Retirement plan) as well as other schemes like fixed deposits, Public Provident Fund etc. Government of India has introduced New Pension scheme from May 2009 onwards in the larger interests of the people of India. The saying goes that reforms are a precondition to successful development but the same reforms can backfire if they are not well conceived. Any pension scheme devised should offer long term benefits to an individual. The new pension scheme by government of India intends to give an individual a choice of savings and investment products with different asset allocations , professional fund management, centralized administration and an option to transfer pension rights from one job/location or from one fund manager to another at low cost.
On looking into the inner details we find that the pension regulator has failed to mention clearly how an individual would accrue the income and be taxed on it under the scheme every year. We will try to unleash the mysteries of the NPS and see what it talks about and how it pits against other retirement products.
Broadly we can see that as per the current provisions, withdrawals from the scheme would be taxed. The NPS will provide all Indians an option to manage their own pension. Unlike existing pension funds that offer assured benefits, NPS has defined contribution and individuals can decide where to invest their money. The returns will purely depend on the conditions prevailing in the market at that point of time. As per the current provisions, withdrawals under the NPS attract tax under the EET (exempt-exempt-taxable) system. By this way, the tax is exempt for contributions to the NPS and for the returns, while withdrawals attract tax.
The pension fund managers appointed to handle the NPS are to manage three separate schemes, each investing in a different asset class viz. Equity, government securities and credit risk - bearing fixed income instruments. (Subject to a cap of 50 percent in equity). For smooth function of the mega pension facility, the Pension Fund Regulatory and Development Authority (PFRDA) has appointed 22 points of presence (PoP) and six pension fund managers. As per the scheme, the investment in equities would be only in index funds that replicate either 30-share BSE sensitive index (Sensex) or the 50-share (Nifty) of the National Stock Exchange (NSE). The pension subscriber will have the option to decide on the proportion of fund investment in the three asset classes. The NPS for all citizens will not have any mandatory obligation for employers to give matching contributions to the pension fund.
If comparison is made with other retirement schemes such as PPF and EPF, it is non-tax friendly. The scheme offers no guaranteed assurance on security of capital fund and interest income. Withdrawal attracts tax implications under the EET model. The pension regulator, however, is lobbying hard with the government for parity in treatment like in the case of other government retirement schemes. From a tax perspective, PPF right now appears far more superior or for that matter, even a bank recurring deposit compared to this new scheme.
One must spend time to work out his cash flows, including future requirements carefully before he decides to invest in the scheme. Since the scheme offers low liquidity and it comes with no guarantee as to the security of your funds, it is advisable to meticulously read the fine print relating to the fund type you opt for. It appears that one must be careful to commit substantial amount in the scheme as there is no assurance as to the principal.
Particulars : (1) New Pension scheme (2) EPF (3) PPF (4) Insurance Linked Pension plan
TAXABILITY
Contribution: (1) Exempt max 100000 (2) Employees U/s 80CCD Contri. Max 100000Exempt (3) Exempt U/S 80C Max 100000 (4) Exempt U/S 80 CCC Max 100000
Accumulation: (1) Exempt (2) Exempt (3) Exempt (4) Exempt
Withdrawal: (1) Taxable (2) Exempt (3) Exempt (4) Commuted pension exempt
(Upto 1/3 of total). annual pension-taxable.
From the foregoing it is implied that the decision making process in arriving at the right plan of investment is not an easy one. As mentioned in the beginning of this article, one must dwell deep into the various retirement plan options available in order that you maximize the returns to the extent possible. After all Retirement is a major milestone in one’s journey through life. We have to make sure that we don’t simply retire from something but have something to retire to.
S.SEKAR
Contact: sekrajc@yahoo.com
The following lines will talk about earning a decent amount even after retirement to take good care of your health and wealth and continue to have a sound mind and a sound body. We can see the opportunities which are available for a decent living during old age. In this context by old age I mean people who have reached the age of sixty and above. We will see all the avenues available in the Indian context as I am an Indian living in India.
If we look at the options available for earning continued income we can come across many avenues Viz. Pension scheme (a form of Retirement plan) as well as other schemes like fixed deposits, Public Provident Fund etc. Government of India has introduced New Pension scheme from May 2009 onwards in the larger interests of the people of India. The saying goes that reforms are a precondition to successful development but the same reforms can backfire if they are not well conceived. Any pension scheme devised should offer long term benefits to an individual. The new pension scheme by government of India intends to give an individual a choice of savings and investment products with different asset allocations , professional fund management, centralized administration and an option to transfer pension rights from one job/location or from one fund manager to another at low cost.
On looking into the inner details we find that the pension regulator has failed to mention clearly how an individual would accrue the income and be taxed on it under the scheme every year. We will try to unleash the mysteries of the NPS and see what it talks about and how it pits against other retirement products.
Broadly we can see that as per the current provisions, withdrawals from the scheme would be taxed. The NPS will provide all Indians an option to manage their own pension. Unlike existing pension funds that offer assured benefits, NPS has defined contribution and individuals can decide where to invest their money. The returns will purely depend on the conditions prevailing in the market at that point of time. As per the current provisions, withdrawals under the NPS attract tax under the EET (exempt-exempt-taxable) system. By this way, the tax is exempt for contributions to the NPS and for the returns, while withdrawals attract tax.
The pension fund managers appointed to handle the NPS are to manage three separate schemes, each investing in a different asset class viz. Equity, government securities and credit risk - bearing fixed income instruments. (Subject to a cap of 50 percent in equity). For smooth function of the mega pension facility, the Pension Fund Regulatory and Development Authority (PFRDA) has appointed 22 points of presence (PoP) and six pension fund managers. As per the scheme, the investment in equities would be only in index funds that replicate either 30-share BSE sensitive index (Sensex) or the 50-share (Nifty) of the National Stock Exchange (NSE). The pension subscriber will have the option to decide on the proportion of fund investment in the three asset classes. The NPS for all citizens will not have any mandatory obligation for employers to give matching contributions to the pension fund.
If comparison is made with other retirement schemes such as PPF and EPF, it is non-tax friendly. The scheme offers no guaranteed assurance on security of capital fund and interest income. Withdrawal attracts tax implications under the EET model. The pension regulator, however, is lobbying hard with the government for parity in treatment like in the case of other government retirement schemes. From a tax perspective, PPF right now appears far more superior or for that matter, even a bank recurring deposit compared to this new scheme.
One must spend time to work out his cash flows, including future requirements carefully before he decides to invest in the scheme. Since the scheme offers low liquidity and it comes with no guarantee as to the security of your funds, it is advisable to meticulously read the fine print relating to the fund type you opt for. It appears that one must be careful to commit substantial amount in the scheme as there is no assurance as to the principal.
Particulars : (1) New Pension scheme (2) EPF (3) PPF (4) Insurance Linked Pension plan
TAXABILITY
Contribution: (1) Exempt max 100000 (2) Employees U/s 80CCD Contri. Max 100000Exempt (3) Exempt U/S 80C Max 100000 (4) Exempt U/S 80 CCC Max 100000
Accumulation: (1) Exempt (2) Exempt (3) Exempt (4) Exempt
Withdrawal: (1) Taxable (2) Exempt (3) Exempt (4) Commuted pension exempt
(Upto 1/3 of total). annual pension-taxable.
From the foregoing it is implied that the decision making process in arriving at the right plan of investment is not an easy one. As mentioned in the beginning of this article, one must dwell deep into the various retirement plan options available in order that you maximize the returns to the extent possible. After all Retirement is a major milestone in one’s journey through life. We have to make sure that we don’t simply retire from something but have something to retire to.
S.SEKAR
Contact: sekrajc@yahoo.com
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