Types of pension plans in India with tax benefits

It is never too early to make investments in pension plans. These plans make sure that you are financially unbiased even after your retirement and are a gorgeous way to experience a month-to-month source of income after they give up on your salaried life.

Some pension plans in India additionally assist save a lot on the earnings tax on PF savings, the insurance plan gratuity amount, or the government pensions that you turn out to be entitled to after your retirement.

Thankfully, there are quite a few pension plans available in India, that provide beautiful saving selections alongside with great tax benefits.

Below listed are the top 4 pension plans in the Indian Market.

1. Deferred Annuity Pension Plans

A deferred annuity pension is a kind of annuity contract that ‘defers’ or delays the payment on the profits until the insurer chooses to receive them. A deferred annuity pension plan genuinely works in two phases.

1) Savings Phase
2) Income Phase

Saving Phase: In the saving phase, the policyholder continues on paying the premium for the pension plan as per the determined tenure.

Income Phase: The income phase permits you to withdraw 1/3rd of your saving amount, while the last money gets invested into annuity products to experience a normal income.

Tax Benefits on Deterred Annuity Pension Plan

There is no taxation in the course of the saving phase under these pension plans until you want to withdraw the corpus.

2. Immediate Annuity Pension Plan

Immediate Annuity Pension plans demand a one-time investment in lump sum amount. The pension starts immediately after the investment and is obtained as a normal pension “payout” for the rest of the life either monthly, quarterly, or annually.

Tax Benefits on Immediate Annuity Pension Plan

The premium paid on instant annuity pension plans is exempted from tax under Section 80C of the Income Tax Act.

3. National Pension Scheme

National Pension Schemes (NPS) are government pension schemes that inspire people to make investments in pension plans in India at some point in their employment tenure.

After retirement, the NPS holder can take out a share of the corpus accumulated, while the remaining amount is acquired as month-to-month pensions.

NPSs are early retirement plans that are best for people working in the private sector and don’t get pensions after retirement.

Tax Benefits of National Pension Scheme

For salaried employees, a maximum deduction of 10% of the complete salary can be claimed under Section 80CCD(1) of the Income Tax Act. For self-employed taxpayers, the maximum limit of NSP is 20% of their gross income.

4. Unit-Linked Pension Plans

Unlike common pension plans that are generally government entities, Unit Linked Pension Plans are normally offered with the aid of insurance plan companies.

These plans contain investing in equity markets and are more perfect for people searching for long-term retirement benefits.

Unit Linked Pension Plans have a lock-in duration of minimal 5 years and the possibilities of collecting a massive corpus are high from their equity investments.

Tax Benefits on Unit Linked Pension Plan

Annually, an investor can experience tax exemptions on INR.1,50,000 below Section 80C of the Income Tax Act for the Unit Linked Pension Plans. One can always seek advice from a tax consultant earlier than making a decision.

Things To Keep In Mind Before Buying A Pension Plan

Any investment you make these days in a pension plan is going to reflect on the returns at the time of retirement.

Hence it is essential that you go through the points and advantages offered by means of different pension plans available in the market and select an early retirement plan that best suits your retirement financial goal.

Make sure you get absolute clarity on the assured pension/income from your pension plan. You can use an online retirement planning calculator to estimate this amount.

While tax advantages are the most important enchantment for any given pension plan, make sure you also watch out for provisions such as liquidity and partial withdrawals in the pension plan.

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