National Pension System
NPS- An investment to secure your retirement life.
National Pension System- commonly known as NPS is the flexible retirement savings account. It was launched by the Government of India and is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
National Pension Scheme (NPS) Regulation
Pension Fund Regulatory and Development Authority (PFRDA) is the responsible body to regulate the NPS functions. The guarantee on NPS returns is uncertain but PFRDA ensures that the investments are done according to the rules.
There Are Two Tiers to Open an NPS Account
NPS Tier I account
This account is designed with the goal of retirement. Partial withdrawal is allowed after the 3 years of opening NPS account. Tier-I is the best tax saving account for the investors.
Anyone who is declared Indian citizen and is or above 18 years of age can open NPS account and start investing in retirement system with the minimum amount of ₹500. Maximum age to open the NPS Tier-I account is 60 years.
NPS Tier II account
Tier-II NPS account is the complete package to enjoy the investment benefits- apart from tax-saving and lock-in period feature like NPS Tier-I account.
Anyone who is an Indian citizen and already are Tier-I NPS account holder can open NPS Tier-II account by investing minimum ₹1000. You can withdraw the invested amount unlimited times from the account. The returns gained on the withdrawal will be added to the income tax for the year based on the tax slab rates.
For further assistance to open NPS account online or for NPS online contribution you can call us on 022-2858 3355/7039002080 or email us at email@example.com
Pension Fund Managers for National Pension System
1. Aditya Birla Sun Life Pension Management Limited.
2. HDFC Pension Management Company Limited.
3. UTI Retirement Solutions Limited.
4. SBI Pension Funds Private Limited.
5. ICICI Prudential Pension Funds Management Company Limited.
6. Reliance Pension Fund.
7. Kotak Mahindra Pension Fund Limited.
8. LIC Pension Fund.
It is important to note that SBI Pension fund, UTI retirement solutions limited and LIC pension fund manage the pension contributions of the public sector employees under NPS.
NPS Tax Benefits:
NPS account holders are at the advantage to tax benefit up to Rs. 1.50 Lac under section 80 CCD(1) and enjoys additional tax exemption up to Rs 50,000 under section 80CCD(1B).
1. Tax benefit for Individual NPS subscriber- An individual who is an NPS subscriber can avail the tax benefit u/s 80CCD (1).up to Rs. 1.50 Lakh.
2. Tax benefit for the NPS subscriber u/s 80CCD (1B) - For the NPS Tier I subscriber, an additional deduction of Rs. 50,000 is available for the investment u/s 80CCD (1B). This investment facility is available over the deduction amount of Rs. 1.5Lac u/s 80C of Income-tax Act, 1961.
3. Tax benefit for the corporate sector- NPS offers a tax benefit for the corporate and corporate individual as well who has subscribed to the scheme:
- Corporate individual/ subscriber: Further tax benefit is offered to the corporate subscriber subject to Income-tax Act u/s 80CCD (2). In the corporate, an employer can contribute up to 10% of the employee’s salary (basic + DA) i.e. from the taxable amount without any limit.
- Corporate: Employer can contribute to the NPS up to 10% of salary-Basic + DA as a business expense from the profit & loss account.
Additional NPS Tax benefits available except u/s 80CCD
NPS allows you as a subscriber to enjoy additional tax benefits apart from u/s 80CCD:
1. Tax benefit on partial withdrawal: NPS Tier-I account allows you to make the partial withdrawal i.e. 25% from own contribution with zero percent levied tax on it.
2. Tax benefit on Annuity purchase: Whatever amount is invested in the annuity purchase, it is free from tax. Though the received income in the subsequent years will be subjected to income tax.
3. Tax benefit on lump sum withdrawal: Once the subscriber attains 60years of age, up to 40% amount withdrawn in a lump sum is free from tax.
Features & Benefits of NPS
1. Returns :A part of the national pension scheme is invested into equities (irrespective of the assured returns). Although compared to the traditional tax saving scheme such as PPF; NPS offers higher returns.
2. Risk Analysis & Assessment: At present, the cap range for NPS is 75% to 50% on the equity aspect. For the government employees, the equity capsize is 50%. Between the prescribed cap ranges, the equity portion will get reduced by 2.5% each year starting from the year the investor/ subscriber turns 50 years of age. For the 60 years and above, the fixed equity capsize is 50%. Thus the risk-return analysis here is in the interest of the investors, ensuring the invested money is safe from the volatility in the equity market.
3. Change in scheme/ Fund Manager: In case you see a drop in the NPS performance, you can anytime change the fund manager or the pension scheme.
4. Voluntary service for the Indian Citizens: During a financial year you can contribute any time and also you enjoy the privilege to change the amount saved each year.
TIP: The NPS earning prospective is higher than other fixed-income schemes.
FAQs on National Pension System
PFRDA is accumulated with the NPS experts hence team will guide you from the NPS basic procedure to open the NPS accounts to contribute to the NPS investments. PFRDA will manage the pension funds through different schemes active under NPS in the regulation with PFRDA Act.
There are two approaches in NPS investment:
Here, you can enjoy the privilege to select manually the allocation percentage of your NPS fund in the asset classes. In simple words- Active choice enables you to build your portfolio by allocating the funds in the following four asset classes available under active choice-
1. Equity (E)
2. Corporate Debt (C)
3. Government Securities (G)
4. Alternative Investments Fund (AIF)
In this category, funds are allocated automatically among the asset classes in the pre-defined algorithm which is further based on the subscriber’s age. Explaining the auto choice further- your fund will be invested in asset classes- E, C, and G in a calculated proportion directly relational to your age. As and when your age increases, fund exposure to E and C will gradually decrease but under G it will increase. Depending on the risk desire of the subscriber, there are three options available under auto choice-
1. Aggressive (LC-75): 75% is the maximum equity exposure till the age of 35.
2. Moderate (LC-50): 50 % is the maximum equity exposure till the age of 35.
3. Conservative (LC-25): 25 % is the maximum equity exposure till the age of 35.
As an NPS subscriber during the time of registration, you will have to make the contribution of ₹500 for tier-I and ₹1000 for a tier-II account. It is important to note here that although it is mandatory for you as an NPS account holder to contribute once during the financial year, you can decide the frequency to contribute during a year based on your convenience.
According to the PFRDA (Exits & Withdrawals under NPS) regulations 2015, the following are the conditions to exit from NPS:
1. Individual attaining age 60: As a subscriber, if you have attained 60 years of age, you are eligible to withdraw a 60% lump sum amount. The remaining 40% will be used to purchase the annuity which would further provide a regular monthly pension. If the total corpus amount is less than Rs. 2.00 Lakh, you are eligible for 100% withdrawal.
2. Early exit: In case of the early exit from NPS (before attaining 60 years of age) only 20% amount can be withdrawn from the total contribution. The remaining 80% accumulated pension corpus has to be utilized to purchase the annuity which will provide a regular monthly pension. You can opt for an early exit from NPS only after 10 years of the subscription. If the total corpus amount is less than Rs. 1.00 Lakh then you are eligible for 100% withdrawal.
3. Death of the subscriber: In case of the subscriber’s death, the entire accumulated pension amount/ corpus i.e. 100% can be withdrawn by the subscriber’s nominee.
Q.Is it possible for me as a subscriber to withdraw some amount and continue to be a subscriber of the NPS account? What are the conditions to make a partial withdrawal from the contribution?
Yes, it is possible. As an NPS subscriber, you can withdraw some amount out of the contribution which is called- partial withdrawal under NPS. Although there are certain conditions to meet in the case to withdraw the partial amount from the contribution:
1. Minimum 3 years of NPS investment is compulsory.
2. 25% is the total withdrawal amount limit from the total contribution. Maximum 3 times you can withdraw during the subscription tenure. Following is the withdrawal bracket:
3. You can withdraw the amount only for specific reasons such as:
- Higher education for the children
- Marriage of the child/ children
- To buy/ renovate the house
- For the medical treatment.
Investmentz.com advice on NPS Investment
It is advisable to make SIP in this instrument. The SIP will help you to regulate the investments in equities, providing the compounding advantages and also calculating the average of the investment value. The eligible age to start NPS is 18-60 years with a minimum investment of ₹500.