- As we all know the better health and sanitation conditions in India have built up the lifespan. The total of post-retirement years has risen as arising of these better health and sanitation conditions.
- Due to this extended life expectancy and cost of living, retirement plan has belonged to a fundamental part of one’s life.
- The National Pension System was established by the Government of India under the Pension Fund Regulatory and Development Authority to have the civilians under the economical social security scheme.
- The fundamental purpose of this pension scheme is to give economic security to a retired person as well as cutting government responsibility.
What is NPS?
- NPS is a shortened form of National Pension System.
- It is a voluntary defined contribution pension scheme in India. Previously the authority paid pension for 10 months to the retired pensioner. Now under a fresh system, an individual will have to ‘contribute’ towards his pension, which the authority will match.
- The ministry of India established the National Pension System with ambition to stop defined benefit pensions for all its employees who joined after 1 January 2004.
- In introducing this scheme was formed for government employees alone, but in 2009 the scheme was freed up for all civilians of India between the age of 18 and 60.If we go through its comprehensive design, the National Pension Policy is closer to 401(k) plans of the U. S.
Tax Structure of NPS
- 40% of the corpus is tax free at maturity, but 60% of the corpus is taxable.
- Of the 60% taxable corpus, 40% has to be compulsorily used to purchase an annuity.
- Contributions to NPS receive tax exemptions under Section 80C, Section 80CCC and Section 80CCD(1) of Income Tax Act.
- An added tax benefit of Rs 50,000 under Section 80CCD(1b) is presented under NPS, which is over the Rs 1.5 lakh exemption of Section 80C, this additional plus is Introduced from 2016.
- Private Fund managers are also significant parts of NPS.
- People considers NPS as one of the finest tax saving instruments, after 40% of the corpus was made tax-free at the time of maturity and it is ranked just below Equity-linked savings.
Any one between 18 and 60 years can invest in NPS.
There are two categories in the revised NPS. There is also NPS Lite scheme for individuals under BPL.
Tier I – In this account you cannot make any withdrawal as the full amount will go towards pension. Employers contribute to this account.
Tier II – This is a supplementary account which can be opened alongside the Tier I account. You can withdraw money from here after 5 years with an intervening gap of 2 years between two withdrawals.
NPS Lite– NPS Lite is also known as Swavalamban Scheme. This plan is for individuals under BPL. If you are under BPL you can receive Rs. 1,000 from the government for the first 4 years. In this plan, there are no regulations on withdrawals.
IN 2016, PFRDA has announced other aspects to NPS including more opportunities to lifecycle funds.
- Aggressive Life Cycle Fund: This option gives you equity exposure of up to 75% till 35 years of age. This is better convenient to you if you are at 20.
- Conservative lifecycle fund: This option makes you enable a 25% starting equity exposure. It is appropriated for you if you are at mature age.
- Automatically Lifecycle Fund: This option functions as its name and provides beneficial for both younger and elder investors.
What is minimal contribution?
The premium for every year is INR 1,000. It obtains an annual compound interest, adding to your fund amount.
What is Rate of Interest in NPS?
NPS is still market- related, rates of interest will differ as per market conditions.
What are withdrawal terms?
- You can withdraw only 20% of the amount from account before the withdrawal age of 60.
- Though after reaching the age of 60, you can withdraw 60% and spend 40% in annuity system.
- If your budget amount in NPS is fewer than 2,00,000, the full amount can be pulled out in lump sum.
- If the beneficiary dies before completing the maturing of retirement, there is proper proceeding for it. The nominee or successor can withdraw about 60% of the entire amount and invest 40% of the full amount in annuity.
Who are the Fund Managers?
– SBI Pension Funds
– LIC Pension Fund
– UTI Retirement Solutions
– HDFC Pension Fund
– ICICI Prudential Pension Fund
– Kotak Pension Fund
– Reliance capital Pension Fund
– Birla Sun Life Pension Management Ltd.
The New Pension Scheme holder can change fund managers in a year free of cost.
What is the Tax Benefit?
- You can claim tax benefit under Sections 80CCD(1), 80CCD(2), and 80CCD(1B) , not exceeding 10% of basic wage + DA. This is relevant particularly to Tier I accounts Under New Pension System.
- Under 80CCE, investors can claim tax benefits on their employer’s addition to NPS, not exceeding 10% of primary + DA Under New Pension System.
- Companies too can claim tax exemptions in their P&L statement Under New Pension System.
- Tier II accounts are like mutual funds.
Who can enlist the scheme?
Any inhabitant of India, resident or non-resident is authorized to enlist the system. Individuals aged between 18-60 years are authorized to engage in in the system.
How and where can you open an NPS account?
- NPS is administered through the authorized entities called Point of Presence (POP’s). Almost all banks and selective financial institutions operate as the point of presence to enter into the NPS architecture.
- Since 2015, e-NPS has been introduced by Indian government; an NPS account can be opened online using either of the two choices possible to finish the KYC process. First is Aadhar based KYC and the second alternative is to provide the permanent account number (PAN) and bank account details to complete the KYC authentication step.
What details required for opening an NPS account?
- Proof of Identity
- Proof of Address
- Proof of date of birth
- Subscriber registration form
How is the NPS system portable?
- You can handle the account of NPS from anywhere in the country.
- If you receive a recruitment from private sector to public or if you accept an employment under the central government or state government, the account will be the same.
- You can too change from one POP to another POP. And the last but not least if you grow into self-employed after giving up the employment, your account will be the same.