POSTED BY September 27, 2013 12:10 pm COMMENTS (14)ON
HI Manish / Others,
My employer is starting to provide option to employees to opt (voluntary, not mandatory) for NPS Corporate sector model in which employer will deduct my Special Allowance (which is fully firstname.lastname@example.org%) with an amount of Rs 3675 (10% of my basic salary of 36750 per month) and deposit this amount in NPS account which will save me 20.6% of tax as per IT section 80CCD(2). This will save me Rs 9100 per year as income tax savings. However employer will also deduct Rs 500 per month from my salary so as to deposit Rs 6000 per year in my NPS account since 6k is minimum which u need to invest as an employee. This will not save me any tax as I consume 80C anyway with PPF and EPF. Now every transaction in NPS has charges of Rs 23 (charged by POP including sevice tax) so total cost will be Rs (23*24=552) + Rs 350 (Annual maintenance charges by CRA) totaling Rs 900 as charges for an amount of Rs 50100 yearly. This is 1.8% as charges and 0.25% fund management charges so total charges will be 2.05% which seems quite high if compared to mutual fund like QLTE (1.25% only). However saving of 20.6% as income tax should well offset this 2.05% charges.
Hence I want your expertise analysis as to whenever I should go for this NPS option. The negatives which I have in my mind are taxable pension, taxable lumpsum withdrawal, compulsory annuity, cant exit even if PFRDA increases charges further during next 30 yrs ( 60 minus 30 yrs my present age), limitation of 50% equity, less returns as compared to diversified MF which are tax free after 1 yr.
Please help me to decide. I dont want to get trapped in a product from which I cant exit for next 30 Yrs. Thanks.