I am self employed and have two questions pertaining to NPS. One is that, the maximum tax benefit I can get from it is Rs 50,000. But I am investing around Rs 1-1.5 lakh. So should I continue with it or limit it to Rs 50,000 and invest the balance in normal tax-saving mutual funds? The next is that is it necessary to vest my annuity at the age of 60 or can I defer it to the age of 65?
-Shiv Kumar
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First is that you can invest and avail tax benefit of upto Rs 2 lakh in NPS; Rs 1.5 lakh on account of section 80C and another Rs 50,000 over and above the Rs 1.5 lakh limit. It is exclusively available for NPS investment. But NPS has its own set of constraints in terms of liquidity. I would rather suggest you to invest Rs 1.5 lakh in normal tax-saving mutual funds and avail the benefit under Section 80C. For the remaining, invest Rs 50,000 in NPS. In NPS, you don't have to necessarily vest into annuity at the age of 60. There is a provision to defer it till the age of 65 or even more. Not only this, in NPS, for somebody like you, they have increased the equity allocation. Now you can invest up to 75 per cent in equity. And NPS rules are evolving. So there is a possibility that it will become more flexible. Who knows, 5 to 10 years down the line, it may become more flexible. Investors who have to necessarily buy the annuity, they might be offered a periodic withdrawal plan; a six per cent withdrawal plan or a four per cent annual withdrawal plan because annuity market in India is not evolved. A six per cent withdrawal rate might get you the advantage without the need to buy the annuity. Your principal will be available to the nominees as and when needed.