Looking to investing in pension schemes? LIC Jeevan Shanti vs National Pension Scheme (NPS) - Find out which is better
A host of pension schemes option are available for Indian citizens, each one differentiating from each other.
There has been massive demand in pension schemes, since the time government started to introduce back-to-back benefits to state-owned and non-employees. A host of pension schemes option are available for Indian citizens, each one differentiating from each other. It would not be wrong to say that, the National Pension Scheme (NPS) is one of the best investment tools for employees who look into retirement schemes. NPS not only gives best interest compared to other traditional options like fixed deposits, but it also gives guaranteed return with amazing tax benefits. The earlier you enter NPS, the more your gains are. In fact some even turn out to retire as crorepati. Interestingly, insurance giant Life Insurance Corporation (LIC) has also stepped into this investment method, by launching its own premium pension plan Jeevan Shanti. LIC’s insurance schemes carter to almost half of India’s population. You can opt for both the scemes online.
NPS is a government tool of investment which is best for low-class families as it requires very little investment every month from the citizens, but ensures massive returns at the time of retirement. The power of NPS is such that one can even retire as crorepati.
Returns - NPS’ 50% exposure involves in equities. Hence, market volatility does impact your investment. The pool has been known for giving interest rates between 8% to 14%.
Contribution - You can start investing in NPS with minimum Rs 500 and Rs 250 on monthly basis in Tier 1 type of account and Tier 2 type of account, respectively. In the former, investment can go up to minimum Rs 1000. For investing, you must be at least at minimum 18 years of age, and the scheme is available till retirement that is 60 years of age.
Tax Benefits - Tax exemption limit for lump sum withdrawal on exit has been enhanced to 60%. With this, the entire withdrawal will now be exempt from income tax. At present, 40% of the total accumulated corpus utilized for purchase of annuity is already tax exempted. Out of 60% of the accumulated corpus withdrawn by the NPS subscriber at the time of retirement, 40% is tax exempt and balance 20% is taxable.
Further there are tax benefit under, three sections namely 80CCD(1) and 80CCD(1B).
In Section 80CCD(1), an employee’s contribution of 10% plus DA allowance will get up to Rs 1.5 lakh eligible for tax exemption. Such contribution is along with section 80C which also gives similar tax benefit.
Further, Section 80CCD(1B) allows an employee to avail tax deduction on additional contribution made under NPS. Up to Rs 50,000 extra contribution made apart from 10% basic salary plus DA allowance, has a tax exemption under section 80CCD(1B). This is also not part of claims offered under section 80C.
Withdrawal - NPS is not entirely withdrawable. The moment a subscriber reaches their retirement age, then he or she will have to keep at least 40% of the corpus towards regular pension plan, meanwhile the remaining 60% of the gains can be withdrawn which are tax exempted. There is also 25% allowed for withdrawal in NPS in case of emergency, however, must be followed after you have stayed invested in the account for at least 3 years.
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Loan facility - This is one disadvantage in NPS, as loan is not allowed against deposits made in this pool.
Lock-in period - An NPS can changed at any time if one is not satisfied by the performance of the scheme. However, one cannot end their NPS investment until retirement. Hence it has a very long lock-in period up till 60 years of age.
This is a single premium plan wherein the Policyholder has an option to choose an Immediate or Deferred annuity.The annuity rates are guaranteed at the inception of the policy for both Immediate and Deferred Annuity and annuities are payable throughout the life time of Annuitant(s).
Returns - Under the immediate annuity plan, one can invest in a lump sum amount and their pension will start immediately. This lump sum investment can be kept for guaranteed period for life, 5 years, 10, years, 15 years and 20 years.
In case of deferred, you can invest in lump sum for your future retirement. It can be opened either jointly or single. The maximum period allowed for having this plan would be 20 years and minimum 1 years. In this section, returns are higher compared to immediate one.
Both provide a guaranteed return.
Contribution - Just like NPS, there is no maximum limit under Jeevan Shanti plan, however, the minimum investment is higher up to Rs 1.5 lakh a year compared to the former. Minimum age of entry would be 30 years of age and maximum 85 years. Minimum age for annuity payment shall be 55 years of age (i.e. under Immediate annuity the minimum age at entry shall be 55 years and under Deferred annuity, the minimum vesting age shall be 55 years).
Tax Benefits - Unlike NPS where there are host of tax claims, the Jeevan Shanti pension plan allows deduction only of Rs 1.5 lakh under section 80C of Income Tax Act.
Withdrawal - One can withdraw 100% of their pension plan on the maturity period they have selected. Interestingly, there is also an option to surrender the scheme after 3 months of issuance.
Loan facility - Over here, Jeevan Shanti bags lead compared to NPS, as they allow loan facility after completion of one year. However, it can be only opted at a specified option, hence, one should check with LIC norms.
Lock-in period - If the Policyholder is not satisfied with the “Terms and Conditions” of the policy, the policy may be returned to the Corporation within 15days.
From the above it can be surely said that, NPS does takes lead in maturity, hefty returns, withdrawal, investment option and tax benefits. This surely is enough for a customer who looks to avail for a pension scheme for their retirement.
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