National Pension Scheme (NPS)

Some more about NPS

Modern working professionals increasingly understand the importance of retirement planning. If you too are searching for a safe and cost-effective retirement scheme, you might have come across the National Pension System (NPS). However, is it indeed a good idea to invest in NPS? Read this post to find out.

NPS was launched in 2004 to help government employees build a considerable retirement corpus and earn a regular pension. In 2009 the scope of the scheme was extended to private employees as well. With modern working professionals now understanding the importance of retirement planning, NPS has become a popular investment option.

The voluntary scheme allows its subscribers to invest throughout their working life. After maturity, one can withdraw a part of the investment in a lump sum and the remaining amount earns a regular pension. While the government continues to add more features and benefits to NPS investment online and offline, is it actually a good option?

Understanding some of its most important benefits can help you get a clear idea.

1. Professional management of portfolio

One of the biggest concerns for investors planning to invest in equity and debt markets is active management of their investment portfolio. Most investors do not have the right knowledge or experience to make changes to their portfolio as per the market conditions. Lack of time also proves a major hurdle.

As per the NPS details, the Pension Fund Regulatory and Development Authority (PFRDA) has authorised fund managers to manage the investments. This ensures that professionals handle your investment on your behalf.

2. Multiple investment options to suit investors

Currently, NPS has two investment options to choose from- Active and Auto. With Active Choice, you can select your own asset allocation across government securities, corporate bonds and equity. However, the maximum equity allocation can only be 50%.

With the Auto Choice, the asset allocation is automatically adjusted between government securities, corporate bonds and equity as per your age. Moreover, you are also allowed to switch between Active and Auto Choice for free, twice a year.

3. Tier I and Tier II accounts for flexible withdrawals

If you are searching for how to invest in NPS online, you might have come across Tier I and Tier II NPS accounts. What are these accounts? The most significant difference between these two accounts is how you can withdraw your money and the tax benefits.

With a Tier I account, you are not allowed to withdraw the entire investment until you reach the retirement age. Even after retirement, there are restrictions on how you can withdraw the money. Although there are certain conditions which allow you to withdraw your contributions provided you have a Tier account for 10 years or more. This can be for your children’s higher education, medical treatment of certain illnesses of self and dependent family members including spouse, kids, and parents, the marriage of kids, and lastly, for buying or constructing the first house.

There are no such rules or restrictions on withdrawals on the Tier II account.

4. Tax benefit on contributions

Since 2015, the government has introduced additional tax benefits on NPS investments. Under Section 80CCD (1B) of the Income Tax (IT) Act, NPS subscribers can get tax deductions of up to Rs <50,000> in a financial year. This deduction is above the Rs <1.5> lakh annual deduction limit that it receives under Section 80CCE.

5. Disciplined investing

Retirement planning is a long-term goal and needs a disciplined investment approach. With most of the popular investment options, investors often withdraw the money after a few years of investment. This makes it difficult for them to achieve their investment objective. However, with the NPS investment option, your investments get locked in until the maturity age of 60. By allowing you to remain invested for a long period, NPS is better able to help you achieve your retirement objective.

6. New government rules

Current Finance Minister, Nirmala Sitharaman, recently announced new rules making NPS quite an attractive investment scheme.

On maturity, the entire 60% of withdrawn amount is tax-free. Earlier only 40% was tax-free whereas 20% was taxable.

The contribution made by Central Government towards Tier I account of their employees will be increased from 10% of the employee’s salary to 14%.

Contributions made in Tier II accounts will also be eligible for tax exemption under Sections 80CCE and 80CCD (1B) provided there is a minimum lock-in period of 3-years.

These announcements along with low expense-ratio of the NPS funds have made them quite a competitive investment scheme especially for those who are looking at building a strong retirement portfolio.

Should you invest in NPS?

Some of the most important NPS details and benefits are discussed above. Understand them clearly, and it shouldn't be difficult for you to decide whether or not NPS is the right option for you.

If you decide to go ahead with NPS, prefer an authorised bank that offers online NPS account opening for enhanced convenience.

10 Benefits of National Pension Scheme (NPS)

There are only two things that can scare an independent salaried employee – BOSS and Tax, and the later is likely to stick around. New schemes are being launched frequently which will help you save your taxes. This blog will help you understand the benefits of National Pension Scheme (NPS) and various ways in which you can reduce your tax burdens.

National Pension Scheme System (NPS)

National Pension Scheme (NPS), is a program with several investment options, launched by the Indian Government, which has been in the limelight due to its attractive schemes. It is an excellent opportunity to invest regularly in your pension account (PRAN) and enjoy the rewards. Earlier, NPS was started as a pension scheme for only Government employees, which was stretched to all Indian citizens (age 18 to 60) by PFRDA. It is beneficial for private sector employees and also for those who want to enjoy getting a regular pension after retirement.

National Pension Scheme System (NPS)

You can open – Tier 1 and Tier 2 account respectively. Tier 1 account is your pension account, which cannot be withdrawn until you are 60, whereas Tier 2 account allows you to withdraw at your will.

The Income Tax Department(ITD) provides various sections for pension plans where accordingly, deductions take place. NPS deductions come under the following sections:

Section 80 CCD (1) – This section is for all eligible Indian citizens (including NRIs). Under this section,
10% of salary deduction is allowed for salaried employees.
10 % of gross income for taxpayers other than salaried employees.
Another part (1B) was included under this section to provide an additional deduction of Rs. 50,000 for the voluntary contribution made by an assessee under NPS

Section 80 CCD (2) – This section allows you to additionally claim a tax deduction on the investment which allows you to reduce tax on the same.
Person Tax Benefits Tax Treatment
Employee · U/S 80CCD (1) of Income Tax Act, 1961 Investment up to 10% of salary (Basic + D.A.) is deducted from taxable income which limits up to 1.5 lakhs.

U/S 80CCD (1B) of Income Tax Act, additional Rs. 50, 000 is deductible from taxable income.
The exempted amount is restricted up to 40% of the Corpus withdrawn in lump sum.
The amount invested in annuity is completely exempt from tax.
Employer · U/S 80CCD (2) of Income Tax Act, 1961 Investment up to 10% of salary (Basic + D.A.) is deducted from taxable income. There is no limit for absolute value.
Tax is applicable on the pension received out of investment in Annuity which is treated as income.

National Pension Scheme System (NPS)

Benefits of Investing in National Pension Scheme (NPS)

By investing in National Pension Scheme (NPS), you not only can avail of tax benefits but the following other benefits as well.

Tax Savings: Extra deduction allowance of Rs. 50,000 with the default deduction u/s (80CCD) i.e. Rs. 1, 50,000 reducing tax liability significantly.
Twofold Benefit: Stability of retirement income and saving on tax makes it an attractive investment opportunity.
Future budget Proposals: Finance Minister has said that Government is planning to provide options to employees so that they can choose to opt out from EPF and invest in NPS.
Future robust planning: It helps individuals to systematically plan their retirement pensions without any tension.
Fund manager selection: NPS offers flexibility in selection of a Fund Manager, who will manage the benefactor’s funds. Also, the option to switch fund manager from one to another is available.
Investment option: As NPS is market-linked investment scheme, it provides the option to the investor to choose stocks, government bonds and, other securities as they please.
Cheap affordable deposits: Minimum deposits to be made for Tier 1 account is Rs. 6,000 and for Tier 2 account is Rs. 500 at a time.
Portability: After the investor has created his own NPS account they are provided Permanent Retirement Account Number (PRAN), a unique number which will stay with the individual regardless of job transfers and locations.
Easy to create and use: User-friendly online portal, which makes it easy to access to your pension account.
Tracking of account: Many banks are registered with Pension Fund Regulatory and Development Authority (PFRDA) which provide NPS related services. Also, all the transactions can be tracked online.
Transparency: As we can keep the track of savings online, keeping investor (employee) aware of investments on day to day basis.

National Pension Scheme System (NPS)

NPS All Citizen Model

As of 1 May 2009, the Indian government decided to roll out the National Voluntary Pension System (NPS) for all people. The Nodal Authority for the management of NPS activities is PFRDA. PFRDA has appointed Department of Posts one of the Point Of Presence (POP). Department of Posts provides services via POP Service Providers (POP SPs). All IndianHead Post Offices are marked as POP S

SERVICES :

New account opening of the National Pension Scheme (All Citizens Model).
Subsequent Contributions.
All kinds of requests for service.
Requests for withdrawal from exit / claim.

TYPES OF ACCOUNTS :

Tier I & Tier II.
Tier I, Pension Account, is compulsory.
Tier II is optional and is Savings Account.
Government Servants appointed on or after 01.01.2004 can only open Tier II Account as their DDOs maintain Tier I.

ELIGIBILITY : All citizens between 18 and 65 years of age who do not come under any NPS sector.

INCOME TAX BENEFITS : Income Tax Benefits For investment in NPS (All Citizen Model) there is an additional tax advantage up to Rs.50,000/-.All Citizens who does not comes under any NPS Sector and Age between 18 & before 65 years of age.

National Pension Scheme System (NPS)

National Pension System (NPS)

What is Nation Pension System?

The National Pension System (NPS) in India is a voluntarily specified pension contribution scheme. The National Pension System, like PPF and EPF, is an EEE (Exempt-Exempt-Exempt) instrument in India where all corpus is tax-free at maturity and all pension withdrawals are tax-free.

NPS began with the Government of India's decision to discontinue defined benefit pensions for all its employees who joined after 1 January 2004. While the scheme was initially only designed for government employees, in 2009 it was opened up for all Indian citizens between the ages of 18 and 60. NPS is closer to 401(k) plans of the United States in its overall structure. The Pension Fund Regulatory and Development Authority (PFRDA) (Based on the recommendations of the Chakka Muni Balaji Ganesh Committee) is administered and controlled in accordance with (Juturu Sahithi Committee).

The National Pension System (NPS)

The changes in NPS will be notified through changes in The Income Tax Act, 1961, which is expected to take place through the Finance Bill in India's 2019 Union budget. NPS is limited to 60 percent EEE. 40 percent must be used compulsorily to buy an annuity that is taxable on the current tax slab.

NPS contributions are exempted from tax under Section 80C, Section 80CCC and Section 80CCD of the Income Tax Act. Starting in 2016, Section 80CCD(1b) provides an extra tax advantage of Rs 50,000 under NPS, which exceeds Rs 1.5 lakh exemption of Section 80C.

Private Fund Managers are significant parts of the NPS. NPS is regarded as the best tax saving instrument and ranked just below the Equity-linked Savings Scheme (ELSS).

National Pension Scheme System (NPS)