National Pension System
To promote and oversee the national pension System, the Indian government founded the Pension Fund Regulatory and Development Authority (PFRDA). On October 10, 2003, an external website was built specifically for this purpose. On January 1, 2004, the National Pension System (NPS) was established with the aim of offering retirement income to every person.
The National Pension System (NPS) aims to implement pension reforms and inculcate in citizens the habit of saving for retirement. NPS was first made available to new government hires, with the exception of those in the military forces. Since May 1, 2009, all citizens, even those in the unorganized sector, have had voluntary access to NPS.
The NPS scheme holds great significance for individuals working in the private sector, ensuring a regular pension after retirement. This scheme is portable across jobs and locations, offering tax benefits under Section 80C and Section 80CCD.
Eligibility:
For those who have a low tolerance for risk and wish to start saving for retirement early, the NPS is a viable option. Undoubtedly, having a steady pension during your retirement years can be beneficial, particularly for those who leave private sector employment.
Anyone who meets the following requirements is eligible to become a member of NPS:
- Must be a non-resident Indian (NRI) or an Indian citizen, either a resident or non-resident.
- Age range should be 18–70 years old.
- Must adhere to the Know Your Customer (KYC) guidelines as stated in the application.
- In accordance with the Indian Contract Act, one must be legally qualified to execute a contract.
- NPS subscriptions are not available to Persons of Indian Origin (PIOs), Overseas Indian Citizens (OCIs), or Hindu Undivided Families (HUFs).
- Since NPS is a personal pension account, it cannot be opened on someone else’s behalf.
- Minimum amount per contribution – Rs 500/- and minimum contribution per year – Rs 6000/- also minimum number of contribution 1 per year.
National Pension System Benefits
Return
A portion of the NPS is allocated to stocks, which might not provide guaranteed returns. On the other hand, compared to other conventional tax-saving investments such as the PPF, it delivers substantially larger returns. With more than ten years of operation, this program has produced 9% to 12% annualized returns to date. If you are dissatisfied with the fund’s performance, you have the option to switch fund managers under NPS.
Tax Benefit of national pension system
Section 80C Tax Deduction: Under Section 80C of the Income Tax Act, an individual may deduct contributions made to a Tier-1 NPS account from their taxes up to a maximum of Rs. 1.5 lakh. This lowers the amount of taxable income.
Extra Deduction under Section 80CCD(1B): In addition to the Section 80C deduction, contributions to NPS are eligible for an exclusive deduction under Section 80CCD(1B) of up to Rs. 50,000. This is in excess of the Rs. 1.5 lakh Section 80C cap. Therefore, a person may be able to deduct up to Rs. 2 lakh in total.
Employer Contribution: If your employer contributes to your NPS account, it’s not considered a part of your taxable income. This employer contribution is eligible for a tax deduction under Section 80CCD(2), which is an additional benefit.
Exemption on Partial Withdrawal: When you make partial withdrawals from your Tier-1 NPS account for specific purposes, such as buying a house, your withdrawals are exempt from tax, subject to certain conditions.
Tax-Deferred Growth: The NPS investment grows in a tax-deferred manner, meaning that the returns on your NPS investments are not taxed until withdrawal. This allows your money to compound without the burden of annual taxes on the gains.
Tax-Deferred Growth: The NPS investment grows in a tax-deferred manner, meaning that the returns on your NPS investments are not taxed until withdrawal. This allows your money to compound without the burden of annual taxes on the gains.
Also Please: Know About Sukanya Samrudhi Yojna
Rules for National Pension System Withdrawals Following Retirement
Currently, 40% of the corpus is placed into an annuity plan, and the remaining 60% can be withdrawn in one lump sum. Under the new NPS standards, subscribers who have a corpus of less than or equal to Rs 5 lakh can withdraw the entire amount without having to purchase an annuity plan.
There is no tax on these withdrawals either. For instance, upon retirement, an individual with a corpus of Rs 4.5 lakh may withdraw the full amount. The tax-free withdrawal cap is set at Rs 6 lakh in case the corpus surpasses Rs 10 lakh. They need to get an annuity plan to cover the remaining Rs 4 lakh.
Currently, 40% of the corpus is placed into an annuity plan, and the remaining 60% can be withdrawn in one lump sum. Under the new NPS standards, subscribers who have a corpus of less than or equal to Rs 5 lakh can withdraw the entire amount without having to purchase an annuity plan.
There is no tax on these withdrawals either. For instance, upon retirement, an individual with a corpus of Rs 4.5 lakh may withdraw the full amount. The tax-free withdrawal cap is set at Rs 6 lakh in case the corpus surpasses Rs 10 lakh. They need to get an annuity plan to cover the remaining Rs 4 lakh.
Annuities have income-based taxation depending on the income level, but withdrawals are tax free. Your annuity will therefore be taxed at the individual’s tax bracket rate if it is worth Rs 4 lakh. Depending on the years of payment, the payout is taxable.
Online Apply
- An NPS account can now be opened in less than 30 minutes. If you link your account to your PAN, Aadhaar, and mobile number, opening an account online at enps.nsdl.com is simple.
- The OTP that was sent to your mobile device can be used to verify the registration. You can use this to generate a PRAN (Permanent Retirement Account Number) for NPS login.
NPS Calculator
Calculate the monthly pension and tax benefits you can avail of by investing in NPS through NPS Calculator.
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