The National Pension Scheme (NPS) is a contribution pension scheme that permits a person to devise for retirement whilst nonetheless running via gathering a pension corpus. It is obligatory for Central Government workers who began paintings after January 1, 2004, and nearly all state governments have followed it for his or her workers. Individuals within the personal sector can voluntarily subscribe to the scheme.
Also learn | Explained: National Pension Scheme (NPS) vs Old Pension Scheme (OPS)
Employees give a contribution 10% in their fundamental wage to NPS, whilst employers give a contribution as much as 14% underneath NPS. All Indians, each residential and non-residential, between the ages of 18 and 70 are eligible to open an account with NPS.
Individual financial savings are pooled in a pension fund and invested in diverse portfolios of Government Bonds, Bills, Corporate Debentures, and Shares via PFRDA-regulated skilled fund managers in keeping with permitted funding pointers of the scheme. These contributions would develop and gather through the years, in response to the returns at the funding.
All you want to understand
NPS is regulated via the Pension Fund Regulatory and Development Authority (PFRDA) and is open to all Indian voters.
– Designed in 2004 as a substitute for govt pensions, it used to be voluntarily prolonged to all Indians in 2009, together with self-employed execs and others within the unorganized sector.
– NPS accounts may also be transferred between jobs and places/geographies.
– Tax incentives are to be had to subscribers underneath the Income Tax Act 1961.
– It supplies market-linked returns in response to the subscriber’s funding possible choices.
Subscribers have on-line get entry to to their NPS accounts.
– At the time of standard go out from the NPS, subscribers might use the collected pension wealth to buy a lifestyles annuity from a PFRDA-approved Life Insurance Company, along with chickening out a portion of the collected pension wealth as a lump sum in the event that they so need.
Types of NPS account
Tier I and Tier II NPS accounts are to be had. Tier I of the NPS is a person pension account, while Tier II is a voluntary financial savings facility to be had as an add-on to Tier I account holders. Tier I accounts have tax advantages however the quantity that may be withdrawn is restricted underneath positive stipulations. Tier II accounts haven’t any tax benefits however no withdrawal restrictions. The NPS tier I account is obligatory however the subscriber has the choice of opening a Tier II account.
Tax advantages
Any particular person who’s an NPS subscriber can declare a tax get advantages underneath Section 80 CCD (1) as much as a most of Rs. 1.5 lakh underneath phase 80CCE.
Under subsection 80CCD (1B), NPS subscribers are eligible for an extra deduction for investments as much as Rs. 50,000 in NPS (Tier I accounts). This is along with the Rs. 1.5 lakh deduction to be had underneath Section 80C of the Income Tax Act of 1961.