National Pension System (NPS):- NPS is a Government of India initiative with an aim to provide retirement benefits to all the citizens of India. The National Pension System (NPS) is a unique pension plan which provides both equity and debt exposure in single investment. It seeks to indoctrinate the saving habit for retirement into all citizens. NPS also offers flexibility to NPS account holders in regard to debt and equity exposure, so it gives an element of trust to the investors because it is backed by the Government of India. This pension plan also promises a monthly pension post-retirement.
NPS Account Types: – NPS offers two types of accounts, one is Tier-I and another is Tier-II. Tier-I account is the pension account having restriction in withdrawal. Tier-II is a voluntary account which offers liquidity of investments and withdrawals. It is allowed only when there is an active Tier-I account in the name of the subscriber. The contributions accumulate over a period of time till retirement grows with market linked returns.
On exit/retirement/superannuation, minimum 40% of the corpus is mandatory use to procure a pension for life by purchasing an annuity from a life insurance company and the balance corpus to pay as lumpsum.
NPS platform offers different models to suit the different segments of users such as:
- The Government model for the Central and State Government Employees –
• NPS is mandatorily applicable on Central Government employees (except Armed Forces) recruited on or after 01.01.2004. Subsequently, all State Governments excluding West Bengal have also adopted NPS for their employees. Govt. employees make a monthly contribution @ 10% of their basic salary and a matching contribution is paid by the Government, For central Government employees, the employer’s contribution rate has been enhanced to 14% w.e.f. 01.04.2019.
- The Corporate Model –
• Companies can opt NPS for their employees with contribution rates as per the employment conditions.
- The All-Citizens Model –
• The All-Citizens Model of the NPS permits any citizen of India aged between 18 – 70 years to join NPS on voluntary basis.
How to join NPS: – You can enrol for NPS online in paperless process through various online platforms and websites from the convenience of your home / office. The account can be opened by all Indian Citizens between 18 to 70 Years.
Benefits of NPS: –
Attractive return & Government backing: NPS is an instrument which comprises equity and debt funds therefore it offers attractive returns to its holder in long term. This is one of the best investment options not only because it offers better return but it also gives assurance to investors due to government backing.
Tax saving: NPS is one of the best options where handsome money can be saved for retirement. The retirement planning process is made simpler by this scheme, which offers a variety of investment options. You can deposit any amount of money into NPS and will receive a pension up to lakhs of rupees.
Investments made through the National Pension System can also help you avoid taxes. Investors are now being encouraged by SBI to invest in this scheme in order to reduce tax obligations.
Section 80 CCD(1) offers a maximum deduction of Rs.1.50 lakh per annum paid to the NPS. Additionally, under a new sub-section 1B was also introduced where an additional deduction up to Rs. 50,000 can be availed for individual taxpayer contribution made towards the NPS. Thus, the maximum limit of exemption is Rs. 2.00 lakhs under Section 80 CCD(1) + Section 80 CCD(1B).
Advantage of the National Pension System: – Anybody between the age of 18 to 70 may invest in this scheme. However, this scheme matures, 60% of the money can be withdrawn and the balance 40% can be invested in an annuity. Tax exemptions can be claimed under Sections 80C and 80CCD of the Income Tax Act. You can continue to receive a pension monthly under this scheme even after taking 60% withdrawal from the account.
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