Where to invest to get a good tax-free return after retirement?
Choosing the right investment vehicle is not always easy. When it comes to long term plans, the decision should be made carefully after exploring all the options. Investing our money not only allows us to save and generate returns, but certain instruments also offer us various tax advantages. In some cases, tax exemptions can go up to Rs 1.5 lakh each tax year of our total taxable income. However, while choosing the right long-term investment or retirement plan, we should look for plans that offer not only annual tax benefits but also tax-free returns at the end of the maturity period.
Of all the investments and retirement plan options available in the market, we try to list some of the most popular that offer good tax-free returns. We try to bring out all the key points here, but it is always important to read the offering diagram in detail before investing your money.
Employee Provident Fund (EPF)
The most popular long-term retirement investment plan among salaried employees is the Employee Provident Fund. Under this scheme, the employer and employee pay 12 percent of base salary plus cost allowance (DA) into the PF account each month. The interest on the amount is provided by the organization managing your PF account, EPFO. The interest rate is revised annually based on market conditions. This device is virtually risk-free and over a period of time, employees can save a good amount of money on their account. The interest earned on your fund and the principal amount are fully tax exempt.
National pension scheme (NPS)
Any citizen between the ages of 18 and 60 can benefit from the benefits of the National Pension Scheme (NPS) administered by the Pension Fund Regulatory Authority of India (PFRDA). You can start contributing to this plan after opening your account and contributions are exempt from tax under section 80 of the Income Tax Act. Account holders can make a partial withdrawal for 3 years after opening the account. Full withdrawal can only be made after depositors have reached the age of 60. The maturity period can be extended by 10 years on request. However, for specific purposes such as housing needs, raising a child or marriage, the depositor can also make an emergency withdrawal of an amount equivalent to only 25 percent of the contributions.
Voluntary Provident Fund (VPF)
The VPF is a voluntary scheme in which employees can contribute monthly and save money. Although there is a fixed contribution rate in EPF, employees can choose the amount of their contribution. However, this can never be less than the 12 percent contribution under the EPF. There is no separate account for VPF and it is linked to the EPF account. The VPF has a minimum blocking period of 5 years and any withdrawal made before this will be subject to a tax deduction.
Public provident fund (PPF)
While the EPF and VPF are pre-employees, any Indian citizen can choose to contribute to the PPF by opening an account at a post office or any major bank. The interest offered on the PPF account is decided by the central government on a quarterly basis based on market conditions. Although the program comes with a 15-year lock-in period, depositors can make partial withdrawals under specific circumstances.
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