I'm 28 years old and have already exhausted my 80C limit. Should I invest in NPS to get additional tax benefit or would it be better to put that money in regular equity mutual funds?
- Amber
I would say that the additional tax benefit you get on investing in NPS is worth availing, specially if it reduces your tax slab. The deduction of upto Rs 50,000 for investing in NPS under Section 80CCD(1B) is available over and above the Rs 1.5 lakh exemption of Section 80C.
Over the time, NPS has improved and equity has actually deteriorated a little bit ever since the introduction of the LTCG tax on equity. To be specific, NPS has improved on two counts. One, because of the complete tax exemption on the withdrawal of 60 per cent corpus at the time of retirement. Second, because of the improvement in its design, pertaining to the increase in maximum limit of equity allocation from 50 per cent to 75 per cent.
So I would suggest that you should invest in NPS and take the highest equity allocation. Liquidity is a constraint here but that's fine because the rest of your money is anyway liquid after three years.
This article was originally published on March 04, 2019.
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