NPS vs EPF – Budget 2021 Expectations: How FM Sitharaman can make National Pension System money-making machine for employees
EPF vs NPS – Budget 2021 Expectations: National Pension System and Employees’ Provident Fund is one of the most favoured pension-oriented investment tools. However, like an EPS account NPS maturity amount is not 100 per cent tax exempted. But, in NPS, one can claim an additional Rs 50,000 income tax exemption under Section 80CCD(2), which is beyond Rs 1.5 lakh available under Section 80C.
Importantly, according to tax and investment experts, there are some possible changes required in the NPS scheme that will make employees’ NPS account a money making tool and more people will come forward to make voluntary investment for their retirement fund apart from the EPS contribution.
Speaking on the raise in annual limit of Rs 50,000 income tax exemption available on investment in employees’ NPS account in a financial year SEBI registered tax and investment expert Jitendra Solanki said, “There has been demand to make NPS maturity amount 100 per cent tax exempted but in my opinion, it is slightly difficult for the government as some other fund houses like LIC (Life Insurance Corporation of India) might ask for the same. But, raising the Rs 50,000 limit under Section 80CCD(2) is definitely possible and FM Sitharaman should think of addressing this in the upcoming budget.”
Solanki said that NPS is for those investors who are ready to take market-risk. So, Finance Minister Nirmala Sitharaman should think of raising the equity investment cap from 75 per cent to 85 per cent as it allows investors to invest in equity and bonds at very low-cost investment. He said that giving a rebate on 40 per cent annuity can be another good change in the NPS scheme and FM Sitharaman should think of addressing it in the upcoming budget as well.
Speaking on the changes to help one’s NPS account to fetch more money at the time of retirement, another SEBI registered tax and investment expert Manikaran Singhal said, “One should not invest keeping income tax exemption in mind. One should look at the returns at the time of maturity because if a person keeps equity and debt portion in 50:50 ratio, then it can expect to get around 10 per cent return on one’s investment in the long-term perspective, which is around 1.5 per cent higher than the recent 8.5 per cent EPF interest rate announced by the central government for FY 2020-21.”