What is National pension scheme (NPS) ?

National pension scheme (NPS)

National Pension Scheme: Eligibility, Contribution, Tax Benefit, Maturity. Everything you want to know about National Pension Scheme is given in this article. One can Find basic details for National Pension Scheme such as About this Scheme, Eligibility Minimum contribution, etc.

What is National pension scheme

The Government of India (GOI) rolled out the NPS for all citizens of India from May 1, 2009 and Corporate sector from December, 2011.

The person (employee/citizen) who joins the NPS will be known as “Subscriber” in the NPS. Under the NPS, each Subscriber will open an account with Central Record keeping Agency (CRA) which will be identified through unique Permanent Retirement Account Number (PRAN).

Under NPS, two types of account is available to subscribers i.e. Tier I & Tier II; Tier I account – where subscribers contribute his / her savings (may include employers contribution in case of Corporate sector) for retirement into a non-withdrawable account, and a Tier II account – a voluntary savings account from which subscribers are free to withdraw their savings whenever he wishes. The facility of Tier II account was made available from December 01, 2009 to All Citizens of India including Govt. employees and Corporate sector subscribers not mandatorily covered under NPS. An active Tier I account will be a pre requisite for opening of a Tier II

National Pension Scheme

Arun Jaitley, Finance minister of India had announced a benefit of an additional tax deduction of Rs 50,000 for those investing in the National Pension Scheme under Sec 80CCD (1B) of income tax act in his Budget speech. This statement grabbed the attention of millions of taxpayers to consider investing in the government-sponsored scheme that was opened to public investors. Even though this scheme has been in existence since six years , but had not managed to prompt the potential taxpayers in investing in this scheme.

Though the Budget did not introduce any additional feature regarding the National Pension Scheme, the additional deduction is a considerable incentive to investors.

For example : If Mr X is earning an amount of total 15,00,000 taxable income per annum. That means he is in the 30% slab.If he opts to invest in this then he can save upto 50,000*30% cess on that I.e 15,450 rupees of tax amount

As the National Pension scheme was not very attractive in earlier days ,it was not much popular among the above middle class salaried employees. Due to the changes that have been brought by the finance Bill by Arun jaitely it gained popularity among these kind of taxpayers especially. Because no other scheme give you a chance of saving 50,000 rupees from attracting income tax. So this scheme is really appreciative in nature.

Eligibility For National Pension Scheme

It is open to anyone from 18 years to 60 years of age. Even NRI s also can open the account in this scheme.

Characteristic Features of NPS :

1.Regulations :

Investment norms are very transparent and regular monitoring and performance review of Fund Managers by the NPS Trust.

2.Feasibility to choose among the following fund managers :

Among these fund managers the investors should select at least one to manage their investment.

  • 1. UTI Retirement Solutions Limited.
  • 2. DSP Blackrock Pension Fund. Managers Private Limited.
  • 3. HDFC Pension Management Company Limited.
  • 4. ICICI Prudential Life Insurance Company Limited.
  • 5. IDFC Asset Management Asset Management Company Limited.
  • 6. Kotak Mahindra Asset Management Company Limited.
  • 7. Reliance Capital Asset Management Company Limited.
  • 8. SBI Pension Funds Limited.

3. Minimum contribution :

The minimum contribution is Rs. 6,000 per year. There is no limit on maximum contribution.But whatever amount you invest in the scheme ,only 50000 is maximum allowed to deduction under this section.

4.Choice of selecting the way of distribution of their contribution

An investor should choose between ACTIVE – CHOICE and AUTO – CHOICE for distribution of his contribution. If they select active choice then subscriber must indicate the percentage distribution between corporate gilt and equity. However the maximum investment allowed in equity is 50%.

What are the benefits of NPS?

  • It is voluntary – NPS is open to every Indian Citizen. A subscriber can choose the amount he wants to set aside and save every year.
  • It is simple – All the subscriber has to do is to open an account with any one of POPs (Point Of Presence) and get a PRAN.
  • It is flexible – Subscribers can choose their own investment option and pension fund and see their money grow.
  • It is portable – Subscribers can operate their account from any where in the country, even if they change the city, job or their pension fund manager.
  • It is regulated – NPS is regulated by PFRDA, with transparent investment norms and regular monitoring and performance review of fund managers by NPS Trust.

What income tax reliefs are available to the individuals contributing to NPS?

Tax benefit to employee:

Tax Benefit available for Individual:

Any individual who is subscriber of NPS can claim tax deduction up to 10 % of gross income under Sec 80 CCD (1) with in the overall ceiling of Rs. 1.5 lac under Sec 80 CCE.

Tax Benefit available for Corporate Subscriber:

Additional Tax Benefit to Subscribers under Corporate Sector u/s 80CCD (2) of Income Tax Act is also available, the employer’s NPS contribution (towards the employee) upto 10% of salary (Basic + DA), without any monetary limit is deductible from taxable income.

Exclusive Tax Benefit for any NPS subscribers u/s 80CCD(1B)

An additional deduction for the investment up to Rs. 50,000 in NPS (Tier I account) has been exclusively available for NPS under subsection 80CCD (1B). This is over and above the deduction of Rs. 1.5 lakh available under sec 80C of Income Tax Act. 1961.

If you are an existing subscriber, you can approach any POP-SP or alternatively you can visit eNPS website (https://enps.nsdl.com) for making additional contribution in your Tier I account.

Please note: Tax benefits are applicable for investments in Tier I account only.

Individuals who are employed and contributing to NPS would enjoy tax benefits on their own contributions as well as their employer’s contribution as under: –

(a) Employee’s own contribution – Eligible for tax deduction up to 10% of Salary (Basic + DA) under Section 80 CCD(1) within the overall ceiling of Rs. 1.5 lac under Sec 80 CCE.

(b) Employer’s contribution – The employee is eligible for tax deduction up to 10% of Salary (Basic + DA) contributed by employer under Sec 80 CCC(2) over and above the limit of Rs. 1.5 lac provided under Sec 80 CCE.

Tax benefit for self-employed:

Eligible for tax deduction up to 10 % of gross income under Sec 80 CCD (1) with in the overall ceiling of Rs. 1 lac under Sec 80 CCE.

Can a subscriber get loan under NPS ?

At present, interim utilization of pension wealth (such as availing of loan) by the subscriber before exit is not allowed under NPS. However, in line with the PFRDA Act 2013, PFRDA is considering the option of interim withdrawal and, the same is yet to be finalized. For more detailed guidelines/circulars regarding withdrawal, you may visit PFRDA website (www.pfrda.org.in) as well as on CRA website (www.npscra.nsdl.co.in).