The National Pension System is a voluntary pension fund scheme of the government of India. Regulated by the PFRDA (Pension Fund Regulatory & Development Authority), the NPS gives exposure to equity and debt instruments. A customer can build a pension fund by investing in this voluntary contribution pension system and also save taxes since the NPS is an EEE (exempt-exempt-exempt) instrument.
NPS:
How does it work?
An
NPS subscriber contributes to his NPS account at regular intervals through the
course of his retirement. After retirement, he can withdraw 60% of this amount
as a lump sum. The remaining 40% of the NPS money is paid as a monthly pension.
NPS
account benefits
Voluntary
Retirement
planning
Tax
benefits
Portable
Cost-effective
Superannuation
fund transfer has no tax implications
NPS
eligibility
Barring
people working in the armed forces, every citizen of India, whether employed in
the public, private or unorganized sector, is eligible for the National Pension
System.
NPS
investment options
Active
choice
You
can decide on the asset classes in which your contribution should be invested.
You can also decide the percentages of this investment. These asset classes
include:
Alternate
assets or Asset Class A: High risk as the fund is invested in real estate and
infrastructure funds.
Equity
or Asset Class E: High risk-high return option.
Corporate
bonds or Asset Class C: Low risk as the fund is invested in fixed income
bearing debt instruments.
Government
securities or Asset Class G: Low risk as the fund is invested in government
securities.
Auto
choice
Under
lifecycle funds, the management of investment of funds is done automatically,
based on the age of the subscriber. Moderate Lifecycle Fund is the default
option under NPS. However, you can pick one of the 3 lifecycle funds:
Aggressive
Life Cycle Fund (LC75)
Moderate
Life Cycle Fund (LC50)
Conservative
Life Cycle Funds (LC25)
NPS
tax benefits
In
the case of NPS, an investor is given income tax exemption on maturity and the
whole pension withdrawal amount. Tax benefits are offered to NPS subscribers
under Section 80CCD.
Against
self-contribution: Under Section 80CCD (1), 10% of your salary or Rs 1.50
lakhs, whichever is lesser, can be claimed as the tax deduction against
self-contribution. You can also claim a tax deduction of up to Rs 50,000 under
section 80CCD (1B) against self-contribution.
Against
employer contribution: Section 80CCD (2) allows deductions against the
employer’s NPS contribution. The deduction amount will be lowest of:
Actual
contribution made by the employer
10%
of basic salary + dearness allowance
Gross
total income.
The
employer tax benefit is capped at up to Rs 7.5 lakh for NPS, PF and
superannuation.
NPS
withdrawal at 60
As
mentioned earlier, you can withdraw 60% of your NPS money as a lump sum. This
money is tax-free.
NPS
withdrawal before 60
Those
who have been contributing to the NPS account for more than three years can
withdraw 25% of the corpus for specific purposes. You can make such withdrawals
thrice, at a gap of 5 years.
NPS
account types
All
citizen model: Where only the subscriber makes the contribution.
Corporate model: Where the subscriber and his employee both make contributions.
Anyone
opening an NPS account (Tier-1 account) can open a sub-account, known as a
Tier-II account.
Tier-I
account: A restricted and conditional
withdrawable retirement account. You can withdraw only upon meeting the exit
conditions.
Tier-II
account: Voluntary savings facility available
as an add-on to any Tier-1 account holder. Subscribers are free to withdraw
their savings whenever they wish.
While
money from the Tier-II account can be transferred to Tier-I, the opposite is
not allowed. Tax benefits are also not offered on the Tier-II account.
NPS
account contribution
All citizen NPS model Tier I Tier II
Minimum contribution at the time of
account opening 500 1000
Minimum amount per contribution Rs 500 250
Minimum total contribution in a year 1000 Not
applicable
Minimum frequency of contributions Once
in a year Not applicable
How to open an
NPS account?
Online: You can
open an NPS account, using the following websites:
Protean
Kfintech
CAMS NPS
Offline: Locate
a Point of Presence Service Provider (POP-SP) to get an NPS registration form. To
know the details of your nearest POP, visit NSDL CRA.
The National
Pension System (NPS) is a retirement savings plan in India that's designed to
help citizens save for their old age:
Eligibility
NPS is open to
all Indian citizens between the ages of 18 and 70, including salaried
employees, self-employed professionals, and non-resident Indians.
Features
NPS is a
voluntary, market-linked, defined contribution plan that offers tax benefits
and flexibility. It's regulated by the Pension Fund Regulatory and Development
Authority (PFRDA).
Benefits
NPS can help
you:
Build a pension
corpus for regular income after retirement
Save on taxes
Get reasonable
market-based returns over time
Account
management
Each NPS
subscriber is issued a Permanent Retirement Account Number (PRAN). The Central
Recordkeeping Agency (CRA) maintains a database of all PRANs and handles record
keeping, administration, and customer service.
Online access
NPS subscribers
can access their accounts online 24/7.
Portability
NPS accounts can
be operated from anywhere in India, even if you change jobs or locations.
Investment
options
Subscribers can
choose from a variety of asset classes, including equity, corporate debt,
government securities, and alternate investment funds.
Colcusion :-
Pension plans provide financial security and stability during old age when
people don't have a regular source of income. Retirement plan ensures that
people live with pride and without compromising on their standard of living
during advancing years. Pension scheme gives an opportunity to invest and
accumulate savings and get lump sum amount as regular income through annuity
plan on retirement.
According to
United Nations Population Division World's life expectancy is expected to reach
75 years by 2050 from present level of 65 years. The better health and
sanitation conditions in India have increased the life span. As a result number
of post-retirement years increases. Thus, rising cost of living, inflation and
life expectancy make retirement planning essential part of today's life. To
provide social security to more citizens the Government of India has started
the National Pension System.
Government of
India established Pension Fund Regulatory and Development Authority (PFRDA)-
External website that opens in a new window on 10th October, 2003 to develop
and regulate pension sector in the country. The National Pension System (NPS)
was launched on 1st January, 2004 with the objective of providing retirement
income to all the citizens. NPS aims to institute pension reforms and to
inculcate the habit of saving for retirement amongst the citizens.
Initially, NPS
was introduced for the new government recruits (except armed forces). With
effect from 1st May, 2009, NPS has been provided for all citizens of the
country including the unorganised sector workers on voluntary basis.
Additionally, to
encourage people from the unorganised sector to voluntarily save for their
retirement the Central Government launched a co-contributory pension scheme,
'Swavalamban Scheme- External website that opens in a new window' in the Union
Budget of 2010-11. Under Swavalamban Scheme- External website that opens in a
new window, the government will contribute a sum of Rs.1,000 to each eligible
NPS subscriber who contributes a minimum of Rs.1,000 and maximum Rs.12,000 per
annum. This scheme is presently applicable upto F.Y.2016-17.
NPS offers
following important features to help subscriber save for retirement:
The subscriber will
be allotted a unique Permanent Retirement Account Number (PRAN). This unique
account number will remain the same for the rest of subscriber's life. This
unique PRAN can be used from any location in India.
PRAN will
provide access to two personal accounts:
Tier I Account:
This is a non-withdrawable account meant for savings for retirement.
Tier II Account:
This is simply a voluntary savings facility. The subscriber is free to withdraw
savings from this account whenever subscriber wishes. No tax benefit is
available on this account.
Regulator and
Entities for NPS
Pension Fund
Regulatory and Development Authority (PFRDA) : Pension Fund Regulatory and
Development Authority (PFRDA)- External website that opens in a new window is
an autonomous body set up by the Government of India to develop and regulate
the pension market in India.
Point of
Presence (POP) : Points of Presence (POPs) are the first points of interaction
of the NPS subscriber with the NPS architecture. The authorized branches of a
POP, called Point of Presence Service Providers (POP-SPs), will act as
collection points and extend a number of customer services to NPS subscribers.
The Pension Fund Regulatory and Development Authority (PFRDA)- External website
that opens in a new window has authorized 58 institutions including public
sector banks, private banks , private financial institutions and the Department
of Posts- External website that opens in a new window as Points of Presence
(POPs) for opening the National Pension System (NPS) accounts of the citizens.
Central
Recordkeeping Agency (CRA) : The recordkeeping, administration and customer
service functions for all subscribers of the NPS are being handled by the
National Securities Depository Limited (NSDL)- External website that opens in a
new window , which is acting as the Central Recordkeeper for the NPS.
Annuity Service
Providers (ASPs) : Annuity Service Providers (ASPs)- External website that
opens in a new window would be responsible for delivering a regular monthly
pension to the subscriber after exit from the NPS.
Government
Employees
NPS is
applicable to all new employees of Central Government service (except Armed
Forces) and Central Autonomous Bodies joining Government service on or after
1st January 2004. Any other government employee who is not mandatorily covered
under NPS can also subscribe to NPS under "All Citizen Model" through
a Point of Presence - Service Provider (POP-SP).
Procedure to subscribe
Contribution to NPS
Withdrawal
State Government
Employees
NPS is applicable
to all the employees of State Governments, State Autonomous Bodies joining
services after the date of notification by the respective State Governments.
Any other government employee who is not mandatorily covered under NPS can also
subscribe to NPS under "All Citizen Model" through a Point of
Presence - Service Provider (POP-SP).
Procedure to subscribe
Contribution to NPS
Withdrawal
Corporate
A Corporate
would have the flexibility to decide investment choice either at subscriber
level or at the corporate level centrally for all its underlying subscribers.
The corporate or the subscriber can choose any one of Pension Fund Managers
(PFMs)- External website that opens in a new window available under “All
Citizen Model” and also the percentage in which the funds are allocated in
various asset classes.
Benefits to Corporate
Benefits to Subscribers
Procedure to Subscribe
Contribution to NPS
Withdrawal
Individual
All citizens of
India between the age of 18 and 60 years as on the date of submission of his /
her application to Point of Presence (POP) / Point of Presence-Service Provider
(POP-SP) can join NPS.
Procedure to Subscribe
Contribution
Withdrawal
Unorganised
Sector Workers - Swavalamban Yojana
A citizen of
India between the age of 18 and 60 years as on the date of submission of his /
her application, who belongs to the unorganized sector or is not in a regular
employment of the Central or a state government, or an autonomous body/ public
sector undertaking of the Central or state government, can open NPS
-Swavalamban account. The subscriber of NPS -Swavalamban- External website that
opens in a new window account should not be covered under social security
scheme like Employees' Provident Fund and miscellaneous Provisions Act, 1952,
The Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948, The
Seamen's Provident Fund Act, 1966, The Assam Tea Plantations Provident Fund and
Pension Fund Scheme Act, 1955 and The Jammu and Kashmir Employees' Provident
Fund Act, 1961.
Individual
All citizens of
India between the age of 18 and 60 years as on the date of submission of his /
her application to Point of Presence (POP) / Point of Presence-Service Provider
(POP-SP) can join NPS.
Procedure to Subscribe
Contribution
Withdrawal
Unorganised
Sector Workers - Swavalamban Yojana
A citizen of
India between the age of 18 and 60 years as on the date of submission of his /
her application, who belongs to the unorganized sector or is not in a regular
employment of the Central or a state government, or an autonomous body/ public
sector undertaking of the Central or state government, can open NPS
-Swavalamban account. The subscriber of NPS -Swavalamban- External website that
opens in a new window account should not be covered under social security
scheme like Employees' Provident Fund and miscellaneous Provisions Act, 1952,
The Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948, The
Seamen's Provident Fund Act, 1966, The Assam Tea Plantations Provident Fund and
Pension Fund Scheme Act, 1955 and The Jammu and Kashmir Employees' Provident
Fund Act, 1961.
Procedure to register for Swavalamban Yojana
Contribution
Withdrawal
Benefits of NPS
Some of the
benefits of the National Pension System (NPS) are:
It is
transparent - NPS is transparent and cost effective system wherein the pension
contributions are invested in the pension fund schemes and the employee will be
able to know the value of the investment on day to day basis.
It is simple -
All the subscriber has to do, is to open an account with his/her nodal office
and get a Permanent Retirement Account Number (PRAN).
It is portable -
Each employee is identified by a unique number and has a separate PRAN which is
portable i.e., will remain same even if an employee gets transferred to any
other office.
It is regulated
- NPS is regulated by Pension Fund Regulatory and Development Authority-
External website that opens in a new window, with transparent investment norms
& regular monitoring and performance review of fund managers by NPS Trust-
External website that opens in a new window.
Benefits of NPS
Some of the
benefits of the National Pension System (NPS) are:
It is
transparent - NPS is transparent and cost effective system wherein the pension
contributions are invested in the pension fund schemes and the employee will be
able to know the value of the investment on day to day basis.
It is simple -
All the subscriber has to do, is to open an account with his/her nodal office
and get a Permanent Retirement Account Number (PRAN).
It is portable -
Each employee is identified by a unique number and has a separate PRAN which is
portable i.e., will remain same even if an employee gets transferred to any
other office.
It is regulated - NPS is regulated by Pension Fund Regulatory and Development Authority- External website that opens in a new window, with transparent investment norms & regular monitoring and performance review of fund managers by NPS Trust- External website that opens in a new window.
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