“NPS is good, but some other product might suit you better”

Everyone is curious about NPS these days. Kamal Murarka, Head of Operations at Tax2Win, was inundated with queries about NPS at ET Wealth Investment Workshop held on January 18 in Jaipur. Murarka was speaking about Efficient Tax Planning at the workshop when the participants asked him about whether it makes sense to invest in NPS to save extra taxes. Some participants were also curious about how private sector employees can claim tax benefit by investing in NPS.

"Any Indian citizen between 18 and 60 years can join NPS. Private employee can deposit the contribution directly or she can route the contribution through the employer she is working with. Both the contributions are eligible for tax deduction," Murarka told the participants.

Many participants were enthusiastic about claiming the extra tax deduction of Rs 50,000 by investing in NPS. However, before proceeding they wanted to be sure whether NPS is the best tax saving option for them. Murarka told the participants that they one should consult a qualified planner and have a detailed discussion to find out the best tax-saving option for them.


"The NPS is a good product but some other tax saving instrument might suit better for your financial needs," Murarka said.

The recent proposed change in taxation of NPS has helped rekindle interest in NPS, a government-backed pension scheme. The Union Cabinet has approved the proposal to allow NPS subscribers to withdraw 60 per cent of the accumulated corpus tax-free at the time of retirement. They must use 40 per cent of the corpus to buy an annuity from a PFRDA-approved annuity provider. Currently, NPS subscribers could withdraw only 40 per cent of the corpus tax-free at the time of retirement.

Many elderly participants, mostly senior citizens living on interest income, were worried about the taxation of their modest income. One of them wanted to know whether it makes sense to opt for Senior Citizen Saving Scheme to save taxes. "Post office senior citizen savings account (SCSS) can be opened by an individual of 60 years or above. It is a good scheme for senior citizens," Murarka told the participant.

Long term capital gains tax continues to confuse many investors. Many participants at the workshop wanted to know how their long term capital gains from equity would be taxed. "Your long term capital gains exceeding Rs 1 lakh per year would be taxed at flat rate of 10 per cent," Murarka said. He used the opportunity to explain to the participants that despite the re-introduction of LTCG tax equity is still a very viable option for investment.

The finance minister re-introduced LTCG tax on equity in his last budget. Earlier, investments in equity held over a year used to qualify for long term capital gains. There were no tax on such gains. Short term capital gains on equity investments held for less than a year are taxed at 15 per cent.