CIT makes little to no sense to me. Accountants/finance experts – CMV?

CIT makes little to no sense to me. Accountants/finance experts – CMV?

So I have been debating to myself the idea of enrolling into the Nagarik Lagani Kosh Pension Yojana.

So, here’s how it works:

* You contribute a certain amount of money which is deducted from your salary by your employer. Minimum amount of Rs 500 per month divisible by 10.
* This deduction is tax-deductible up to a certain amount. EPF + CIT up to Rs 3 Lakh or 1/3rd of your taxable income, whichever is lower, can be counted towards deduction towards your taxable income.
* This contribution should be for a minimum of 15 years up to the age you reach 60.
* Around 7% is the return towards this contribution. Minus fund manager and miscellaneous fees.
* At the age you reach 60, the Final accumulated amount along with the returns/bonuses will be calculated.
* This final amount is then divided by 170 and will be your lifelong monthly pension.

Let’s take a hypothetical example.

1. My yearly taxable income is Rs 12,00,000.
2. CIT Contribution is Rs 20,000 monthly or Rs 2,40,000 annual.
3. I’m 30 years old. The CIT Contribution is for the next 30 years.

Assuming 7% return,

my final amount at age 60 = Rs 2.41 crore (not deducting the fund fees)

monthly pension after age 60 = Rs 2.41crore/170 = Rs 1.41 lakhs

So basically,

this becomes a time value of money scenario in a way that if today you put Rs20k investment for 30 years, you get Rs 1.41 lakh after 30 years.

Simple mathematics shows that the return on this investment is only **6.7%** pa. Adjusting inflation and fund fees, it is almost zero.

Also, the tax benefit is basically negligible because of the Rs 3lakhs deduction cap. You hardly save 60k tax per year, and you can see that money only after 30 years.

So, what am I missing out on? I would rather pay the extra 50-60k tax every year and enjoy the money today, or put it in a better investment vehicle or heck even health insurance for that matter. Change my view?

Would love to see opinions from accountants and finance experts.

View on r/Nepal by JackThorne30