Jaihind Maurya

NPS

  • Under NPS account, two sub-accounts – Tier I & II are provided. Tier I account is mandatory and the subscriber has option to opt for Tier II account opening and operation. The following are the salient features of these sub-accounts:
  • Tier-I account: This is a non-withdrawable retirement account which can be withdrawn only upon meeting the exit conditions prescribed under NPS.
  • Tier-II account: This is a voluntary savings facility available as an add-on to any Tier-1 account holder. Subscribers will be free to withdraw their savings from this account whenever they wish.
  • A subscriber has to contribute a minimum annual contribution of Rs.6000/- for his Tier I and Rs.2,000/ for Tier II account in a financial year and if not contributed the account will be frozen.

Tax benefit to employee:

  • Individuals who are employed and contributing to NPS would enjoy tax benefits on their own contributions as well as their employer’s contribution as under: – (a) Employee’s own contribution – Eligible for tax deduction up to 10% of Salary (Basic + DA) under Section 80 CCD(1) within the overall ceiling of Rs.2 lac under Sec 80 CCE. (b) Employer’s contribution – The employee is eligible for tax deduction up to 10% of Salary (Basic + DA) contributed by employer under Sec 80 CCC(2) over and above the limit of Rs.2 lac provided under Sec 80 CCE.

Tax benefit for self-employed:

  • Eligible for tax deduction up to 10 % of gross income under Sec 80 CCD (1) with in the overall ceiling of Rs.2 lac under Sec 80 CCE.

Provisions for withdrawal of the accumulated pension wealth once I attain 60 years of age?

  • At least 40% of the accumulated pension wealth of the subscriber needs to be utilized for purchase of an annuity providing for the monthly pension of the subscriber and the balance is paid as a lump sum payment to the subscriber

Retire or does not want to continue in the NPS before age 60?

  • In such an eventuality, at least 80% of the accumulated pension wealth of the subscriber needs to be utilized for purchase of an annuity providing for the monthly pension of the subscriber and the balance is paid as a lump sum payment to the subscriber.

Interest

  • In NPS will get units just like you do in mutual funds.

Risk & Return

Invested In Risk Return
Index Based Stocks Carry Market Risk 3.79%
Bond issued by state govt., PSUs, and private firms Going by the quality of company risk would be low 8.66%
Bond issued by central Govt. Low Risk

5.92%

Equity linked savings schemes (ELSS)

What is ELSS:-

Equity linked savings schemes (ELSS) are mutual fund investments that also provide tax savings. ELSS funds are invested entirely into the equity markets, thereby providing good opportunities for growth. However, ELSS schemes also carry the risks associated with the equity market, and there’s no guarantee of any fixed returns.

Tax benefits of ELSS:

You can get tax benefits of up to Rs. 150,000 per year by investing in the various ELSS schemes. You don’t have to pay tax on any dividends earned through ELSS investments. Also, there’s no tax on withdrawal of ELSS investments. Among all the tax-saving options, ELSS has the potential to generate maximum returns.

Withdrawal of ELSS:

ELSS investments have a lock-in period of 3 years, so you cannot withdraw money until that time. When you compare with other tax-saving instruments, the lock-in period of ELSS is the lowest. After three years, you can continue to stay invested as ELSS doesn’t have an expiry period.

Return on ELSS:-

Returns from ELSS depend on the market’s performance. The return is very by company to company. The return on investment can be more than 12% of good mutual fund company or it can be less than 5% of an average company.

Risk on ELSS:-

Risk is depending upon fluctuation of market.

Public Provident Fund

  • Interest rates: Interest rates are announced by the central government periodically, usually annually. Interest earned is compounded yearly. (The current rate of interest on a PPF account is fixed at 8.1% p.a.)
  • Tenure: 15 years; account continuance is allowed beyond maturity for 5 years at every renewal, with or without making additional deposits.
  • Initial investment/deposit: 100 to open the account
  • Annual Deposit amount: 500 – Rs.1.5 lakhs per year (can be revised as per government directive)
  • Deposit frequency: A deposit has to be made every year, for 15 years, to keep the account active. Failure to make the minimum annual investment will render the account inactive.
  • Deposit modes: Via cash, cheque,PO, DD, online funds transfer; as a one-time deposit or up to 12 installments.
  • Withdrawals: Partial premature withdrawals can be made every year from year 7; withdrawals are subject to conditions. Complete withdrawal of funds can be made only at maturity.
  • Tax advantages: Interests are tax-free and deposited amounts are tax deductible U/S 80C of the Income Tax Act. Withdrawals are exempt from wealth tax.
  • Nomination: Allowed; on opening the account or after.
  • Fund transfer: Funds/accounts cannot be transferred between people but can be easily transferred between bank branches or post offices for free.
  • Loan facility: Loans can be availed against funds held in the PPF account from year 3 to year 6.
  • Renewal: Renewal or extension of the scheme is allowed, for an extra 5 years at a time.
  • Joint accounts: Not allowed.

 Summary:-

Parameter PPF NSC ELSS
Tenure (Year) 15 5 3
Returns 8.80% p.a. 8.60% to 8.90% No assured return
Minimum Investments Rs.500/- Rs.100/- Rs.500/-
Maximum Investments Rs.1,00,000/- No Limit No Limit
Amount eligible for deduction Rs.1,50,000 Rs.1,50,000 Rs.1,50,000
Taxation for Interest Tax Free Taxable Dividend & Capital Gain tax free
Risk Low Low High

I affirm that, the article titled “Analysis of Investments U/s. 80C of Income Tax Act” is my original contribution and portion of it has been adopted from any other source.This article is an exclusive contribution for Taxguru.in and has not been would be sent elsewhere for publication and The copyright in respect of this article, if published in Taxguru.in shall vest with Taxguru.in.

The views expressed in this article are not necessarily those of the Taxguru.in or the editors of the Taxguru.in.

(Author can be reached at vjgroupco@gmail.com)

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5 responses to “Analysis of NPS, ELSS, PPF Investment u/s. 80C of Income Tax”

  1. Vicky says:

    Hi, I have a doubt regarding NPS Contribution and its tax benefit. i want to invest 50K in NPS so will i get a additional tax benefit on this 50K over and above 80C contribution ? i already have contribution for 80C for amount 1.5 L which includes LIC+PF+PPF only. So if i invest 50K in NPS will that can be claimed as additional dedcution over 1.5 L 80 C limit or additional deduction of 50K for NPS can be claimed only when total NPS contribution is total 2L (1.5L+50K) ?

  2. Alok Kumar Chaturvedi says:

    sir,
    Please clear my doubt on NPS Contribution that
    2 lakh rebate of income tax is applicable only on NPS contribution amount
    or
    1.50 lakh amount(from 80C like ppf+nsc+lic+education) +50000 additional of NPS Contribution

  3. natarajan, says:

    the max.deposit is 1.5 lacs. and not one lac as mentionedin your summary.
    natarajan

  4. Pawan Kumar Gupta says:

    I think the maximum amount of deposit per yearin PPF should be 150,000.

  5. Ramaswamy S says:

    article is on nps vs ppf vs elss. However, the table talks about nsc vs ppf vs elss. need to correct

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