NPS a boon for retirement planning needs of Entrepreneurs, Freelancers and Self-employed Professionals

Mumbai, 14th March 2023: As a financial goal, planning for one’s retirement is of utmost importance as the fulfillment of this goal spans decades and requires thorough discipline and periodic self-assessment. The crucial thing about retirement planning is to start early, yet the majority of professionals (self-employed) delay their decision to save for retirement with the belief that they will continue to work forever. The feeling of not having saved enough for retirement during their active career befalls those who are less far-sighted and lead an unconventional lifestyle.

Against the deep-set notion that entrepreneurs, freelancers, and self-employed professionals will never retire from work and that individuals working in their personal capacity do not have financial privileges for securing their retirement, the National Pension System (NPS), which is available for subscription by any citizen of India aged between 18-70 years deserves consideration. NPS is ideal for self-employed professionals like lawyers, doctors, chartered accountants, entrepreneurs, architects, journalists, chefs, and freelancers wherein no employer is attached.

NPS offers a high degree of flexibility to subscribers in making their contributions, choice of a fund manager, and allocation of investments according to one’s risk appetite. A subscriber can even invest up to 75% of his/her fund in equity.

Over the past decade, NPS has delivered competitive market returns with an added advantage of tax benefits (deductions up to Rs 2 lakhs) to subscribers. The low-cost feature of NPS benefits subscribers in accumulating a higher pension corpus.

Here are the five compelling factors why entrepreneurs and self-employed professionals should enroll in NPS:

Flexibility: NPS provides self-employed individuals with the option to contribute any amount anytime at their convenience. There is no upper limit on how much one can invest and how many times one can invest.

The husband-wife duo can enroll: Since NPS is an individual pension account, self-employed couples who run their family business can open separate NPS accounts and avail of the tax benefits in their individual capacity. This will facilitate higher corpus and pensions when they decide to stop working.

Employees’ loyalty booster: NPS can be extended by an employer to its employees to encourage loyalty for the enterprise they work with. Not only it will secure the future of employees but the employer can claim a deduction for such NPS contributions as business expenses u/s 36 (1)(iv)(a) of the Income Tax Act.

Tax Incentives available: Contributions made by self-employed professionals towards NPS can be claimed as deductions from total income up to 20% of gross annual income (within the over ceiling of Rs.1.50 lakh u/s 80C). Further, an exclusive tax deduction of Rs 50,000 is available u/s 80 CCD(1B).

Entrepreneurs’ retirement income is secured even if the enterprise ceases to exist: NPS being an ‘individual pension account’, the pension corpus belongs to the subscriber and is separate from the enterprise or entity.

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