Mumbai: The National Pension Scheme (NPS) is a voluntary contribution pension scheme designed for employees from public, private, or unorganised sectors. Under this plan, the amount should be invested at regular intervals during employment, some percentage of which can be taken out after retirement. The remaining amount from the corpus can be calculated using a Pension Calculator &can be received after retirement, just like the monthly pension amount.
The individual who invests in the National Pension Scheme is known as a “Subscriber”. Every subscriber has to get an account opened with the Central Recordkeeping Agency (CRA), further getting the identification completed with the help of a unique Permanent Retirement Account Number (PRAN). NPS is a flexible, hassle-free & safe investment plan that allows one to secure a financial future in a planned manner.
Benefits &Features
Provided below are the benefits & features of the National Pension Scheme:
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Regulated: The national pension Scheme is governed by NPS Trust & managed by the Pension Fund Regulatory & Development Authority.
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Flexibility: It offers flexibility in the selection of tenure & amount according to the financial objectives & risk appetite.
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Voluntary Participation: This scheme can be availed by any Indian resident between 18 & 70 years.
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Portability: Even in circumstances of a job change or any relocation, the National Pension Scheme Account remains the same.
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Cost-effective: It offers low-cost & economical long-term Pension Plans.
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Tax Advantages: It provides tax advantages to both self-employed & salaried individuals.
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Section 80CCD (1): Get a tax deduction, maximum up to INR 1,50,000 u/s 80C.
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Section 80CCD (1B): Get an additional tax deduction maximum of INR 50,000 u/s 80C.
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Superannuation Fund Transfer: The funds from the superannuation account can be transferred to the National pension scheme account.
Eligibility Criteria
Provided are the eligibility parameters that are to be met to start with the National Pension Scheme:
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The applicant should be a citizen of India, i.e. resident or non-resident.
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The applicant can also be a Non-Resident Indian, i.e. NRI.
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The applicant’s minimum age should be at least 18 years.
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The applicant’s maximum age should be 70 years.
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The KYC details, i.e. “Know your Customer”, should also be filled in the application form.
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The applicant should be competent enough legally to execute a contract according to the “Indian Contract Act”.
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Persons of Indian Origin (PIOs), Overseas Citizens of India (OCI), & Hindu Undivided Families (HUFs) cannot apply for NPS.
Types of NPS Accounts
There are two types of accounts maintained under the NPS Scheme, namely Tier-I & Tier-II:
Tier-I Account
Features:
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It is an individual account for pension.
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Withdrawal of funds is regulated under “Exit & Withdrawal & regulations”.
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The minimum contribution amount required to open a NPS account is INR 600.
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The minimum contribution amount on a per annum basis is INR 1000.
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AMC charges are applicable separately.
Tier-II Account
Features:
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It is an optional account with a Tier-I account.
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There are no restrictions on the withdrawal of funds.
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The minimum contribution amount required to open a NPS account is INR 250.
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There is no restriction on the minimum contribution amount per year.
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AMC charges are not applicable separately.
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Switching from Tier II to Tier I is allowed at any point in time.
Classes of Assets
The four different classes of assets that specify the allocation are as mentioned below:
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Asset Class E – Includes equity & instrumentsrelated to thereof
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Asset Class C – Includes corporate debts&instrumentsrelated to thereof
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Asset Class G – Includes government bonds &instrumentsrelated to thereof
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Asset Class A –Includes alternative Investment Funds, which include instruments like MBS, CMBS, AIFs, REITS, Invlts, etc.
Points to remember when choosing the asset class.
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In the case ofAlternative Investment Funds, the contribution value in percentage cannot be more than 5%.
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The allocation of funds across all asset classes should be equal to 100%.
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In the case of Tier-I, 75% can be allocated towards equity.
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In the case of Tier II, 100% can be allocated towards equity.
Taxation Benefits
Provided are the taxation benefits under National Pension Scheme (NPS):
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Tax Benefits for Employees: Under section 80CCD(1) of the Income Tax Act, 1961, get a deduction of tax up to 10% of salary, i.e. Basic Salary + Dearness Allowance up to a maximum of INR 1,50,000 u/s 80CCE. Also, get an additional tax deduction of INR 50,000 u/s 80CCD(1B).
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Tax Benefits for Employers: Under section 80CCD(2) of the Income Tax Act, 1961, get a deduction of tax up to 10% of salary, i.e. Basic Salary + Dearness Allowance.
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Tax Benefits for Self-Employed Individuals: Under section 80CCD(1), self-employed individuals can avail of a deduction of a maximum of up to 20% of the gross salary. Also, get an additional tax deduction of INR 50,000 u/s 80CCD(1B).
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Tax Benefits in Case of Partial Withdrawals: The contribution towards NPS made by self is exempt from tax up to 25% u/s 10(12B).
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Tax Benefits in Case of Annuity Purchase: Under section 80CCD(5), get an exemption from tax on the purchase of an annuity or, in the case of superannuation, at the age of 60 years. Further income will be taxable u/s 80CCD(3).
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Tax Benefits in Case of Lumpsum Withdrawal: When the funds are withdrawn in a lump sum at the time of superannuation or when the age of 60 years is completed, you can avail of an exemption of tax u/s 10 of the Income Tax Act, 1961.
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Tax Benefits in Case of Corporates: Get a deduction of tax on the share of the employer’s contribution towards NPS, a maximum of up to 10% of the salary of an employee, which includes (Basic Salary + Dearness Allowance). This deduction can be availed considering the employee’s income as a Businesscost u/s 36(1)(iv)(a).
Conclusion
National Pension Scheme is the wisest choice for an individual who is looking for low-cost, flexible, & reliable retirement options. One can build a considerable corpus amount for retirement along with tax benefits.
