At present, the NPS is to be Taxed at the time of Withdrawal. The Pension Fund Regulator has taken up the issue with the Finance Ministry to address the anamoly and the decision is expected when the New Govt is formed.
NEGATIVES :
1) No Tax Concession on Withdrawals.
2) No premature Withdrawals allowed expect for Critical Illness, building/buying a house; Even at sixty, you can only withdraw as cash 60 per cent of the corpus, the rest must be used to buy an annuity, However this drawback has been nullified by introducing Tier II account, wherin all your contribution can be withdrawn anytime.
3) You need to compulsorily buy Immediate Annuity with 80% of the Money accumulated, if you want to Withdraw before you are 60. Again, introduction of Tier II account will nullify this hurdle.
POSITIVES :
1) The Investor has the option of shifting from One fund Manager to another by instructing his POP to do so. This facility is available between May 1 and May 15 every year.
2) Can be operated from anywhere and even relocating to another city will not affect your investment as the PRAN remains the same.
3) The Monthly/Quarterly Contribution towards the NPS will be partly routed towards Equity which will automatically ensure Rupee cost Averaging and ensure High Returns and thus ensure "higher than inflation" returns.
4) Investment upto Rs.1 lakh is Tax Deductible under Sec80c.
5) For Investors with slightly larger amounts and investing 4 times a year, the charges are attractively low. The NPS wins hands down on this matter.
6) Internet facility option with the investors, where invester can view his all account status anytime just by click of the mouse unlike in PF and PPF.
7)Tier II account works exactly like mutual fund with 0.0009% per annum against 1.5-2% for balanced fund and .75% for debt fund except the tax implications.
CONCLUSION :
This is the Best thing to have happened to the Indian Investors who have not had much of a choice regarding Pension earlier. The benefits of Compounded Returns that the NPS offers will be immense. If the NPS is promoted in the right way, it will be no less than a Revolution.
The Tax on Withdrawal, for me, is a blunder and will be rectified by the Govt sooner rather than later.
The Interim Withdrawal too may be allowed in future, which will make this product that much more attractive.
The best option would be to go for the LifeCycle Fund.
The Low Charges and Automatic Rupee Cost Averaging makes NPS a Better Option than the Pension Plans offered by Insurance Companies.
The benefits of New Pension Scheme (NPS) are no longer confined to government employees. An individual from the unorganised sector can also avail of the benefits with the government opening it to all citizens from May 1, 2009.
It was announced in the Budget that NPS will not attract any securities transaction tax (STT) and dividend distribution tax (DDT), which will improve the performance of the scheme further.
For complete details on NPS (New Pension Scheme) click the link below
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