Is it good to invest in NPS to save Tax?

By | December 25, 2017

Invest in NPS or Not – Advantages and Disadvantages of National Pension Scheme

If you wish to invest and save tax too then investing in National Pension Scheme is good. In one year, is investing 50,000 rupees and saving tax is a good idea? This is one of the most common questions asked at different levels by people. So, let’s discuss whether to invest in NPS or not?

Investments Scheme

Usually, answer to this question is given in terms of saving tax. The answer to this question is simply yes as due to this there is saving in tax which is not possible as such. But what about people who do not want to save tax.

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On the other hand, there are many limitations in NPS which convince you not to invest in it. Some of these limitations are: There is the long lock in period and NUT is compulsory and tax is levied while withdrawing money.

The fact is nobody sells NPS with excitement. This means not many people remain keen on investing in it. Mostly these types of investment which involves saving tax, attract fewer people. We would like to make you another side of this with an example. Suppose if you have Rs. 50,000 and wish you to invest it in saving.

What is the best way of doing it? Suppose a person of around 34 years of age is planning to invest. He will invest for another 26 years until his retirement. Now he invests Rs. 50,000 in a year on NPS. He will get around 11.5% in return. This sums up to around Rs. 77.8 Lakhs.

This is the amount person will get after 26 years. This is in accordance with 8% return and 15% return on equity in 50:50 ratio. Now the person will give little tax on the amount and will buy NUT with the remaining amount.

On the other hand, another person pays 15,000 taxes and invests 35,000 in the mutual fund. He gets 15% tax. At the end this person gets Rs. 99.2 lakhs. This money is tax-free and the person can spend it at his own wish. Hence go ahead and make the right choice.

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