NEW DELHI: Now, you can save up for your old age and save on tax as well. With the finance minister removing the restriction of Rs10,000 on investment in pension funds under Section 80CC, investors can put up to Rs100,000 in a pension fund and enjoy a tax break on the entire amount.
This is good news for small investors as well as insurance companies which have floated pension fund schemes. In fact, the industry had voiced this demand time and again. However, withdrawal of the amount on maturity will be taxable.
Earlier, only investment up to Rs10,000 was eligible for tax break and this was part of the overall limit of Rs100,000 allowed under Section 80C.
Though the Rs100,000 overall limit stays, the lifting of the Rs10,000-cap means that anyone who puts in Rs100,000 in a pension fund can save taxes of Rs30,060.
MD of Aviva Life Insurance Stuart Purdy said the change in Section 80C, even though the overall limit of Rs100,000 remained, was good news for the insurance industry. “It’s a favourable move that will encourage long-term savings.
Now, customers have the flexibility to invest up to Rs100,000 in pension plans for future financial security.” However, Purdy did feel that the overall limit under Section 80C should have been raised to at least Rs200,000. According to Ernst and Young partner Ashwin Parekh, removal of the cap clearly indicated the government’s effort to concentrate on pension reforms.
“This is even more pertinent considering we don’t have a social security system in the country at present. Now with the cap gone, an investor can choose to invest a higher amount in pension funds rather than other instruments.” Director of Boston Consulting Group Alpesh Shah welcomed the move, saying it would make pension funds a more attractive product. “Earlier, people put in only Rs10,000 in pension funds in order to avail the maximum tax benefit.
Now, a larger tax break will lure investors into saving up more for retirement, especially since there is no security net for old people in the country. This also bodes well for insurance companies.” As far as small investors are concerned, it’s goodbye taxing times and hello, comfy retirement.—By arrangement with The Times of India
