From PPF to NPS, smart tax saving options for FY 2022-23 (2024)

FAQs

Is NPS better than PPF? ›

NPS vs PPF: Comparison

Returns: NPS can give up to 10% in some cases whereas PPF provides low but stable returns around 7-8%. Liquidity: NPS has slightly higher liquidity as it provides multiple opportunities of partial withdrawal. PPF however, allows partial withdrawal after a certain lock-in period and an amount cap.

PPF is one investment vehicle that falls under the Exempt-Exempt-Exempt (EEE) category. This, in other words, means that all deposits made in the PPF are deductible under Section 80C of the Income Tax Act. However, it should be noted that the maximum contribution in PPF cannot exceed Rs.1.5 lakh in one financial year.

Section 80 CCD (1B) gives an additional deduction of Rs.50,000 on their NPS contributions. Section 80 CCD(2) provides that employees can claim a deduction on the NPS contribution of up to 10% of salary (14% of salary for Central Government) made by the employer.

The SBI Pension Fund had the best returns (8.20%) during the last five years under the NPS Central Government Scheme as of January 31 2023. The fund primarily invests in banking, state development loans, and government securities.

The PPF contributions of up to Rs. 1.5 Lakh in a financial year are eligible for tax deductions under Section 80C of the Income Tax Act, 1961.

After PPF, ELSS is one of the most tax friendly 80C investment options. ELSS capital gains of up to Rs 1 lakh in a financial year are tax free. Capital gains in excess of Rs 1 lakh are taxed at 10%.

Corporate Subscriber:

Additional Tax Benefit is available to Subscribers under Corporate Sector, u/s 80CCD (2) of Income Tax Act. Employer's NPS contribution (for the benefit of employee) up to 10% of salary (Basic + DA), is deductible from taxable income, up-to 7.5 Lakh.

What tax changes are coming in 2023? ›

Standard deduction increase: The standard deduction for 2023 (which'll be useful when you file in 2024) increases to $13,850 for single filers and $27,700 for married couples filing jointly. Tax brackets increase: The income tax brackets will also increase in 2023.

For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022.

Tier 1 and Tier 2 NPS accounts are two different categories. As opposed to Tier 1, which serves as the principal NPS account for building a retirement fund, Tier 2 is similar to a voluntary savings account and provides greater flexibility for deposits and withdrawals.

An investor who has invested in NPS for 3 years, can withdraw a maximum 25% of the total contribution. During the entire tenure an investor may apply three-times for partial NPS premature withdrawal. All partial withdrawals can be done free of cost.

The National Pension System (NPS) is a market-linked retirement planning scheme that allows you to create a suitable corpus for your golden years with market-linked returns. However, in the recent past, the equity funds of the NPS scheme do not measure up in terms of their returns. The reason – a poor equity market.

You won't have specific information about what you're doing right or wrong. There may be better metrics for your business. NPS is sometimes considered obsolete because other options exist to measure specific perceptions of a business.

PFRDA has appointed NSDL and KARVY as Central Record Keeping Agency (CRA) for NPS. Both venture in India carries out the functions of record keeping, administration and customer Service for all subscribers under NPS.

Ans: SBI Pension Funds gives the highest interest returns of 9.71% p.a. for a 1-year term under the NPS scheme.

Who is best Fund Manager in NPS? ›

Aditya Birla Sun Life Pension Management. HDFC Pension Management. ICICI Prudential Pension Fund Management.

U.S. Tax Treatment of Indian Public Provident Fund (PPF)

It grows tax free for 15-years, and then the investment pays out. For example, if your money is invested in an Indian PPF with a 15 year term, then the money cannot be touched by the investor during that time-period.

More About PPF Interest Rates

You are allowed to make only 12 transactions in a calendar year, and the maximum amount you can deposit in your PPF account cannot exceed 1.5 Lakh in a year.

Max out your PPF account by April 5th

You can make any number of contributions in a financial year. It should total an amount of ₹ 1.5 lakhs. To earn maximum interest, you should contribute the entire amount by the 5th of April. Thus, interest will be calculated on this amount for the next 12 months.

The PPF interest rate is lower than the Employee Provident Fund (EPF) interest rate, making it less attractive for salaried employees who can allocate higher amounts towards EPF through Voluntary Provident Fund (VPF) for better returns and tax benefits. The current EPF rate is 8.15% while the current PPF rate is 7.1%.

Further, an individual will earn a higher interest by making a lump sum investment every financial year than monthly deposits in PPF account. If an individual makes a PPF investment of Rs 12,500 before the fifth of every month, the individual will get a maturity amount of Rs 39,44,599.

For long-term, risk-free investments, the Public Provident Fund (PPF) remains one of the most preferred instruments among investors. Tax-saving benefits and tax-free returns make PPF an ideal investment for long-term financial goals.

Historically speaking, NPS interest rates have varied between 9% – 12%. After retirement, individuals can withdraw a portion of the accumulated amount in a lump sum, which is capped at 60%. The rest of such amounts are used to invest in an annuity plan. Thereby, the beneficiary will receive a fixed monthly pension.

Tax-free partial withdrawals in NPS are allowed after a 3-year lock-in period up to a maximum of 25% of the total amount invested in individual capacity. Please note: Individual subscribers will only be allowed a maximum of three withdrawals during the entire tenure of subscription.

Tier II is an add-on account which provides you the flexibility to invest and withdraw from various schemes available in NPS without any exit load. You can save the details captured during Tier II Activation process at regular intervals by clicking on 'Save and Proceed'.

Will we get a bigger tax refund in 2023? ›

According to early IRS data, the average tax refund will be about 11% smaller in 2023 versus 2022, largely due to the end of pandemic-related tax credits and deductions.

To get a complete copy of a previously filed tax return, along with all attachments (including Form W-2), submit Form 4506, Request for Copy of Tax Return. Refer to the form for instructions and for the processing fee.

Social Security benefits may or may not be taxed after 62, depending in large part on other income earned. Those only receiving Social Security benefits do not have to pay federal income taxes.

NPS Tier 2 Advantages and Disadvantages

Like in bank FDs, the amount under the NPS tier 2 plan can be withdrawn easily. However, unlike FDs here the complete fund is counted as taxable amount. Single Account – The disadvantage, on the other hand, is that a person can have only one NPS account throughout life.

NPS Tier 2 is more cost-effective than mutual funds. Its expense ratio doesn't go beyond 0.09 per cent. By contrast, 'direct' mutual funds' expense ratio ranges from 0.3-1 per cent. And if you take 'regular' mutual funds into account, the expense ratio is even higher, ranging from 0.6 to 2.3 per cent.

In the last 10 years, most of the pension fund managers have given 12% to 14% annualised returns to investors under the NPS Scheme E (Tier 1), which primarily invests in equity stocks, according to data on the NPS Trust website as of May 26, 2023.

The NPS Tier 1 account matures after the subscriber attains the age of 60 years, although you can delay withdrawal of these investments till the age of 70. Under existing NPS withdrawal rules for withdrawal after maturity, you can withdraw up to 60% of your corpus tax free.

There are some disadvantages of National Pension System scheme as mentioned below: Limits on amount withdrawal – NPS comes with a lock-in period. Further, there are restrictions on the withdrawal from the pension amount. In fact, NPS restricts any kind of withdrawals until the policyholder reaches 60 years of age.

What happens to NPS annuity after death? ›

Annuity payable for life with 100% Annuity payable to spouse on death of annuitant - On death of the annuitant, Annuity is paid to the spouse during his/her life time. If the spouse predeceases the annuitant, payment of Annuity will cease after the death of the annuitant.

ELSS – ELSS funds are helpful for both immediate and long-term objectives. They also provide greater returns than NPS.

After PPF, ELSS is one of the most tax friendly 80C investment options. ELSS capital gains of up to Rs 1 lakh in a financial year are tax free. Capital gains in excess of Rs 1 lakh are taxed at 10%.

Because of this, mutual funds provide greater potential for development than NPS, and investors who are ready to take on additional risk in order to achieve larger returns choose them.

Is NPS a good investment? Yes, NPS does make for a good retirement savings scheme and worth investing. Though, it may not be the best scheme to invest in if you aim to save for some specific purposes like children's education, marriage etc. However, for other needs, a PPF serves as the best scheme of investment.

State Bank of India (SBI), which is the largest bank in the country, offers the PPF scheme with a good interest rate. SBI has over 15,000 branches in India, therefore, getting access to the scheme is easy. Opening the PPF account offered by SBI can also be done online.

The maturity period of NPS is 60 years. You must contribute to your NPS account till you attain 60 years. However, you can partially or prematurely withdraw a certain percentage of your contributions before attaining 60 years.

How often should I invest in NPS? ›

1. How many times should a Subscriber invest in a year? There are no lower or upper limits to the number of contributions per year. The Subscriber is free to manage the frequency and amounts of contributions.

Historically speaking, NPS interest rates have varied between 9% – 12%. After retirement, individuals can withdraw a portion of the accumulated amount in a lump sum, which is capped at 60%. The rest of such amounts are used to invest in an annuity plan. Thereby, the beneficiary will receive a fixed monthly pension.