All of us want to have that one saving scheme – don’t we? Here we will speak about the two major options left on the table when it comes to saving, and let us understand the scheme that is meant for us. Shall we? We can start from scratch, trying to understand the meaning of NPS, ELSS, and how they work since saving money on tax saving scheme is one of the essential factors we need to look at for a better tomorrow.
What is NPS?
NPS, or should we say – the National Pension Scheme, is an investment plus pension scheme that has been launched by the government- it is also regulated and administered by the pension fund regulatory and development authority.
Meaning:- It is a scheme that is open to all of the employees from the public, private, and also unorganized sectors. But also, you have to remember – this scheme does not apply to the individuals in the armed forces.
In this scheme, the applicant will make a minimum contribution of Rs. 6,000 in a year, which will be paid as a lump sum or in monthly instalments.
Terms and Conditions:- In the NPS scheme, you will be investing in market-linked instruments like debt and equity, and the returns of it depend on the performance of the investments. The interest rate of this scheme right now goes from 8% to 10%.
An Indian citizen who is between 18 to 60 years of age can apply for the scheme. It can also be extended for more than 60 years. It lets the applicant make partial withdrawal up to 25% of the contribution after three years of opening the account in a specific scenario – it could be buying a home, sponsoring education, or for treatment.
What is ELSS- tax saving scheme?
Investing in an ELSS means you are investing in a mutual fund investment scheme – it is an equity-linked savings scheme that is eligible for tax deductions under the provisions of Section 80C of the Income Tax Act, 1961. You can claim a tax rebate of one and a half lakh and save up to Rs.46,800 a year in taxes by investing in ELSS.
Meaning:- It is made towards equity and equity-linked securities like shares. They have exposure to fixed-income securities, and they come with a lock-in period of three years.
Terms:- ELSS funds offer tax deductions of up to a lakh and a half under section 80C. They are also the only tax-saving investment that has the potential to offer inflation-beating returns. It gives you twin benefits as it mostly consists of equities, while they have exposure towards fixed securities.
Both of these funds are good schemes, but are they for you? You will know when you look at the benefits mentioned below.
Benefits- tax saving scheme
ELSS – Under the terms of Section 80C of the Income Tax Act of 1961, ELSS mutual funds enable tax deductions of up to Rs 1,50,000 each year. This allows you to save up to Rs 46,800 in taxes per year. However, you have to remember that your assets are locked in for three years from the date of purchase.
NPS – The national pension scheme has a lot more benefits. The interests are quite high and can be up to 9%. It also has a tax benefit of up to Rs.1.5 lakhs. There is a lock-in period until the age of 60 years – which means it is the best scheme for pension or after retirement. It gives you enough amount of flexibility. Also, most importantly – it is regulated by the government.
Both of the schemes are good – and the best part about them is that they have great tax benefits. If you are okay with fluctuating rates – you do not have to wait and start investing in NPS and vice-versa.
Why do you need to start saving now?
Here are some reasons why you need to start saving without the wait for a perfect time.
- It allows you to keep the peace in your mind: Just to know that you have a certain amount saved up for times of need provides you with peace of mind. You may live a stress-free life knowing that you will not have to suffer if things go unexpectedly wrong.
- It covers your children’s education: You may fund your children’s goals and send them to the greatest schools and colleges in the world if you have a sizable savings account.
- It provides you with a brighter future: Savings can help you achieve a variety of objectives. You can use your cash to buy a house, save for retirement, or buy a car. You may plan for your future, enjoy the best of what life has to offer, and live a very fulfilling existence.
- It provides your family with security in the event of a terrible incident: You may ensure that your family is well-provided for by saving in a disciplined manner. In difficult times, your savings might act as a cushion for your loved ones, assisting them in overcoming any financial difficulties.
- You can set short-term goals: Savings aren’t solely for the long term. You can also benefit from short-term savings. Many individuals save for a few months before travelling.
NPS or ELSS – you need to choose one based on your risk appetite and how long you can be locked in for. If you can afford to be locked in for the long term, you need to choose NPS. If you can’t stay invested for a long time – the ELSS scheme is perfect for you!