National Pension System (NPS)
What is NPS?
National Pension System (NPS) is a defined contribution scheme. It allows the NPS subscriber to contribute periodically towards their NPS account through their working life. The accumulated funds can be later be used to purchase an annuity. The scheme is specially designed as a sustainable financials solution to provide adequate retirement income to all Indian citizens. The primary objective of NPS includes
- Encourage regular habit of investment
- Provide regular income to all in their post retirement life
- Extend old age security to all citizens
- Provide attractive market- linked returns to the NPS subscriber
How to Open an NPS Account?
NPS is regulated by Pension Fund Regulatory and Development Authority (PFRDA) . The subscriber can open a NPS account either online or offline.
Online
Opening an NPS account online is easy and quick. (please click here to open your NPS account ). Once the NPS subscriber submits the registration form and relevant documents, they will be re-directed to a payment gateway for completing the payment towards their NPS account
Offline
To open the NPS account, the subscriber should visit our branch, fill in the registration form along with relevant KYC form and initial contribution. Once the application is processed the CRA (Central Record Keeping Agency) will dispatch PRAN (Permanent Retirement Account Number) and the password.
Types of NPS
Under the National Pension System, the NPS subscriber can open two types of accounts Tier I and Tier II
Tier I Account
The Tier I account is non-withdrawal permanent pension account. The subscriber needs to contribute at least Rs 1000 every financial year in one or more installments. Every contribution cannot be less than Rs 500. The subscriber can contribute any time during the year and there is no limit on the number of contributions that a subscriber can make in a year. There is no maximum contribution limit for NPS Tier I account. Investment in Tier I account is eligible for tax deductions under Income Tax Act 1961
Tier II Account
The Tier II account is a voluntary withdrawal investment account. The subscriber can open Tier II account at the time of opening of Tier I account or at any later date with a minimum contribution of Rs 250. There is no minimum balance requirement or minimum annual contribution requirement in Tier II account. There is no upper limit for maximum contribution in Tier II account.
Tax Benefits of NPS
Tax benefits on contribution to NPS Tier I Account
Under Section 80CCD (1)
- NPS subscriber (salaried employees) can claim a deduction on their contribution to NPS of up to 10% of the salary (Basic + Dearness Allowance).
- The self-employed NPS subscribers can claim a tax deduction up to 20% of their gross income or Rs. 1,50,000 whichever is less.
This deduction is within the limit of tax deduction U/S 80C
Section 80CCD (1B)
- NPS subscriber can claim tax deduction on an additional self-contribution upto Rs. 50,000/-
How to make an additional contribution to avail tax benefit?
Subscriber can click on “contribute more in NPS ” to make an additional contribution to the NPS Tier I account or approach branch.
Under Section 80CCD (2)
Contribution made by employer on behalf of NPS subscriber are tax deductible subject to:
- Maximum of 10% of the salary (Basic Salary + Dearness Allowance).
- The total deduction for all retrial contribution made by employer including Provident Fund, Super Annuation Fund and NPS cannot exceed Rs. 7.5 lacs.
The deduction under the section is over and above the limit of Rs. 1,50,000 under Section 80CCD (1).
Tax treatment for NPS at the time of Exit.
For lumpsum withdrawal at retirement
Once the NPS subscriber attain the retirement age (60 years), Subscriber is eligible to withdraw 60% of the corpus in lumpsum. The amount withdrawn is exempted from tax.
For Purchasing Annuity
The amount that the subscribers use for purchasing an annuity is fully exempted from tax.
For Premature Exit from NPS
NPS subscribers who wish to exit NPS before maturity of the scheme can withdraw 20% of the corpus. The amount withdrawn is exempted from tax.
