Budget 2018: proposes to increase PMVVY limit to Rs 15 lakh.
The Pradhanmantri Vaya Vandana Yojana (PMVVY)is a pension scheme subsidised by the Government of India.
The finance minister has proposed to extend the PMVVY scheme till March, 2020.
It has also proposed to increase the current investment limit t o Rs 15 lakh from the existing limit of Rs 7.5 lakh per senior citizen.
The PMVVY is a pension scheme subsidised by the Government of India. The amount of investment made in the scheme is called the 'purchase price'. PMVVY was launched on May 4, 2017, and was initially meant to be available for one year from the launch.
Depending on the pension option (monthly, quarterly, yearly), the pension begins as an arrear, i.e., starts from the end of the chosen period.
The scheme is for a period of 10 years and is based on the amount of investment. It carries a fixed and assured pension (return) as mentioned in the policy document till the maturity of the scheme.
The amount of pension in PMVVY is not based on age. The return in PMVVY range from 8 to 8.3 percent depending on the mode of pension that one chooses. Similar to post office monthly income scheme or the senior citizen savings scheme (SCSS), the maximum investment amount (purchase price) and the pension amount that one can get is capped.
The limits
Currently, the total amount of pension or the purchase price under all the PMVVY policies allowed to a family cannot exceed Rs 60,000 per annum or Rs 7.5 lakh respectively. The family for this purpose will comprise of the pensioner, his or her spouse and dependents.
Calculation of pension amount
Illustratively, if one invests Rs 5 lakh (purchase price) and opts for a yearly pension, the pension amount will be:
For every the pension amount comes to Rs 41,500 annually. So, if one needs a monthly pension of Rs 3,000, one needs to invest Rs 4.5 lakh. On investing the maximum allowed amount of Rs 7.5 lakh, a monthly pension for ten years will be Rs 5,000.
On maturity or on death
PMVVY has a term of ten years and on surviving the date of maturity, the purchase price along with the final pension installment is refunded to the individual. On death during the policy term of 10 years, only the purchase price is refunded to the beneficiary.
Early exit
In case the investor needs money for the treatment of any critical or a terminal illness of self or spouse, the exit is allowed and in that case the 98 percent of Purchase Price will be refunded.
Where to buy
LIC of India has been given the sole privilege to operate this scheme. This scheme can be purchased offline as well as online from the LIC website.
Taxability
There is no tax benefit available on the amount invested. Further, the pension received will be fully taxable in the hands of the individual in the year of receipt. The government, however, has exempted PMVVY from service tax
Conclusion
PMVVY does not have any tax benefit and neither is the income tax-free. It, however, offers a return higher than bank FD's and comes with a sovereign guarantee.
Retirees especially senior citizens look for investment avenues which are safe and provide an assured return to meet their regular income needs. No one single investment product can meet the requirements of an investor such as , liquidity, taxability, safety and other concerns. One has to keep a diversified retirement portfolio so that it optimally meets the investor's concerns.
Importantly, as interest rates in the country are on the way down, PMVVY locks up the funds for a longer duration and assures a fixed income for the next ten years. The downside is that if the interest rate takes a u-turn anytime during the tenure, the investor will be at a disadvantage as liquidity in PMVVY is highly restrictive. Invest only a portion of your funds which you feel can be parked for a longer tenure.
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