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Budget 2018
Jan 25, 2018 11:38 AM IST | Source: Moneycontrol.com

Budget 2018: Will it provide benefit for retirement products like PPF and NPS?

Parity between NPS and pension exemption limits, as also exemption parity between annuity maturity proceeds and PF withdrawals is something that should be considered, says expert.

Navneet Dubey @imNavneetDubey

The need for retirement planning is gaining importance due to the rising life expectancy. Medical advances have resulted in a steady increase in the lifespan of the average Indian, implying that we’ll likely have a whole generation of nonagenarians having to fend for themselves in a few decades!

“The government needs to play an active role in encouraging robust, growth-oriented savings towards retirement corpus-building. Since tax saving and tax efficiency are such potent drivers of investor behaviour in India, any budgetary moves that are aimed to drive more long-term, locked in savings into the capital markets will certainly help,” said Harsh Gahlaut, CEO, FinEdge.

As a matter of fact, India clearly lacks social security system and therefore, long-term savings and investments become important for every individual. The common man obviously has some expectations from the government on a strengthening of the social security net in this budget.

“Parity between NPS and pension exemption limits, as also exemption parity between annuity maturity proceeds and PF withdrawals is something that should be considered,” Karni Singh Arha, Chief Financial Officer, Aviva Life Insurance said.

Here are some Budget expectations on retirement products:

Investment in Public Provident Fund (PPF)

Currently, the deduction of a maximum Rs 150,000 is allowed to all individual taxpayers for investing in various tax saving schemes, such as EPF, PPF, life insurance schemes, National Savings Certificates, ELSS, etc. under Section 80C.

Abhinav Angirish, Managing Director, Abchlor Investment Advisors Private Limited. told Moneycontrol that after considering the increase in the cost of living in the today's time, we can say that this amount of savings is not even sufficient to survive even today, leave alone later in life. This brings in the need for higher savings. “It is expected that the cap of permissible deductions under this section may be increased to around Rs.2.5 lakhs, to encourage individuals to save more towards their retirements,” he said.

Gahlaut feels there is a chance that the PPF limit may be hiked beyond the current cap of Rs. 1.5 Lakhs, in line with an increased overall limit for claiming deductions under Section 80C.

Taxation for National Pension System (NPS)

NPS is a product which can help taxpayers invest for retirement as it invests in equity, which evidently has a good hedge against inflation. Despite this fact, people still avoid it due to the complicated rules of investment like compulsory certain proportionate of investment into an annuity, taxation of at least 20% of the corpus at the time of withdrawal, etc. “What will make this a popular mode of investment is if these rules of investment are simplified and the tax implication gets reduced. In addition, there needs to be a serious thought for the reach of this product,” said Angirish.

“There should be an increase in the income tax slabs exemption leaving more money in people’s hands to channelize the funds well,” Aviva’s Arha said.

India Union Budget 2018: What does Finance Minister Arun Jaitley have up his sleeve? Click here for live Budget 2018 news, views and analyses.
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