Advance in NPS is without doubt one of the ideal the right way to store taxes and plan retirement. The scheme is covered beneath area 80C and 80CCD of the salary Tax Act 1961. Thereby enabling you to claim a tax abatement of up to Rs. 2L a months on NPS contributions made. The NPS is a low-cost pension product, which is professionally managed through alimony money regulated through the principal executive’s pension fund regulatory and building authority of India. Let’s discuss about 12 points of NPS benefits.
Note that there is no maximum limit on investment in national pension scheme but minimum Rs 1,000 investment per financial year is required to keep the account active.
NPS is available for citizens aged 18 to 65 and The subscribers are required to make at least 1 contribution per fiscal.
NPS has 2 accounts – Tier 1 and Tier 2. While Tier 1 is the default account for tax benefit purpose and Tier 2 account is optional.
When you open an national pension scheme account, Tier 1 account is opened as default and one can avail tax benefit on Tier 1 investment.
The NPS is basically a pension-cum-investment scheme, backed by the government of India. The funds you put in the account is invested in regulated instruments in equity and debt for ensuring market-linked returns.
All assets under National Pension System is owned by the National Pension System Trust – a body set up by Pension Fund Regulatory and Development Authority.
NPS benefits on Taxes
National Pension System contributions are eligible for tax deduction under sec 80 CCD(1) of IT Act 1961 within the overall limit of Rs 1.50 Lacs.
The subscriber is allowed an additional tax deduction for contribution made to under sec 80CCD 1(B) of IT Act 1961 subject to a maximum of Rs. 50,000/-.
Under section Section 80 CCD (2) for Corporate, The employer can deposit a maximum of 10% of the individual’s salary (Basic salary Dearness allowance) as per the IT Act 1961.
The amount withdrawn from scheme for emergency purposes (Partial Withdrawals) are tax-exempt under sec 12B of IT Act 1961.
At maturity, the lumpsum funds received by the subscriber (maximum 60% of corpus) is an exempted income under section 12A of Income Tax Act 1961.
The balance fund paid for purchasing annuity (minimum 40% of corpus) is also an exempted income 80CCD(5) of IT Act 1961.
National Pension System offers a range of investment options (Active Choice: Individual Funds and Auto Choice: Lifecycle Fund) and You can select your Pension’s Manager for planning the growth of the investments in a reasonable manner and also monitor the growth of the pension corpus.
The Subscribers can switch over from one investment option to another or from one Pension fund manager to another.
Pension Fund Manager list
Birla Sunlife Pension Management Limited
HDFC Pension Management Company Limited
ICICI Prudential Pension Funds Management Company Limited
Kotak Mahindra Pension Fund Limited
LIC Pension Fund Limited
Reliance Capital Pension Fund Limited
SBI Pension Funds Private Limited
UTI Retirement Solutions Limited
Opening an NPS account provides a PRAN, which is a unique number and it remains with the subscriber throughout his lifetime.
The NPS plan is structured into two tiers – Tier I & II.
The Tier-I account is a non-withdrawable account wherein the contribution made by the subscriber is credited and invested as per their chosen fund manager.
The Tier-II account is a voluntary account, which is allowed only if the subscriber has Tier-I account in their name. The subscribers can withdraw funds from their account as per their needs and as required.
NPS provides seamless portability across jobs/location.
It would provide hassle-free arrangement for the individual subscribers while people shifts to the new job or new location, without leaving behind the corpus build, as happens in many pension schemes.
NPS is regulated by Pension Fund Regulatory & Development Authority (PFRDA), with transparent investment norms, regular monitoring and also review the performance of fund managers by NPS Trust. The NPS account maintenance costs are the lowest as compared to similar pension plan across the globe. While saving for a long term investment such as retirement, the cost matters a lot as the charges can shave off a significant amount from the corpus over 30-45 years.
NPS benefits on Power of Compounding
Pension wealth accumulation grows over the period of time with a compounding effect till the retirement.
The maintenance charges of account being low, the benefit of accumulated pension wealth to the subscriber eventually become large.
The NPS account is manageable online. An account can be opened by the eNPS portal. Further contributions can be made online by the eNPS portals of CRAs.
NPS benefits on Voluntary
National Pension System is a voluntary investment option where subscribers can contribute at any point of time
and also change the amount he/she wants to set aside and save every year.
National Pension Scheme is considered to be one of the low-cost pension plan. it’s comparatively the administrative charges and fund management fees are also the lowest.
NPS benefits on Partial Withdrawal
A subscriber can make partial withdrawal after joining the NPS after 10 years. but, not exceeding 25% of the contributions made by him/her.
Partial withdrawal from NPS Tier-1 account is allowed only in specified situations.
Higher education of his/her children.
Marriage of his/her children.
Purchase or construction of residential house or flat.
Treatment of specified illness like Cancer, Kidney failure, Multiple Sclerosis, Major organ transplant, Heart Valve Surgery, Stroke, Coma etc.
Establishing his/her own venture or any start-up.
Available for All
All citizens of India between the age of 18 and 60 years as on the date of submission of his / her application to POP – Point of Presence / Point of Presence-Service Provider can join NPS.
An NRI can open an NPS account.
Contributions made by NRI are subject to regulatory requirements as prescribed by Reserve Bank of India from time to time. However, Overseas Citizens of India ( OCI) and Person of Indian Origin (PIO) card holders.
The National Pension Scheme has been a very good option to invest in and obtain retirement benefits from, through the years and continues to be one of the best investment options.
The systematic investment made during a person’s earning years will help them enjoy the retirement period of their life without any financial worries.