NATIONAL PENSION SYSTEM (NPS)

About

The National Pension Scheme (NPS) started by Government of India is a low cost, tax-efficient and flexible retirement savings scheme. While the scheme in the first instance was designed for government employees only, but later it was opened up for all citizens of India in 2009. A person can invest in this scheme as per his requirement.

NPS is closer to 401(k) plans of the United States. Administered and regulated by the Pension Fund Regulatory and Development Authority, It is a quasi Exempt-Exempt-Taxable instrument in India where 40% of the corpus escapes tax at maturity, while 60% of the corpus is taxable. Of the 60% taxable corpus, 40% has to be compulsorily used to purchase an annuity.

NPS National Pension System

Contributions to NPS receive tax exemptions under Section 80C, Section 80CCC and Section 80CCD(1) of Income Tax Act. Starting from 2016, an additional tax benefit of Rs 50,000 under Section 80CCD(1b) is provided under NPS, which is over the Rs 1.5 lakh exemption of Section 80C. Private Fund managers are important parts of NPS. NPS is considered one of the best tax saving instruments, after 40% of the corpus was made tax-free at the time of maturity and it is ranked just below Equity-linked savings scheme(ELSS).


Eligibility for National Pension Scheme (NPS)

A citizen of India, whether resident or non-resident can join NPS, conditions are below:

  1. The candidate should be between 18 and 60 years old as of the date of submission of his/her application to the Point of Presence (POP) / Point of Presence–Service Provider-Authorized branches of POP for NPS (POP-SP).
  2. The subscribers should comply with the Know Your Customer (KYC) norms as detailed in the subscriber registration form.
  3. Should not be Un-discharged insolvent and individuals of unsound mind.

Achievements

  1. As of December 2016, the number of subscribers had grown substantially to 1.41 crore. 
  2. NPS assets under management grew to Rs 1,61,016 crore as of December 2016. 
  3. 88% of total NPS AUM is accounted for Government sector, both Central and State employees, who also account for 35 per cent of the number of subscribers. 
  4. As of March 2016, The total AUM of the NPS Tier II segment is Rs 197 crore. NPS Tier II has 34,620 subscribers with an average balance of Rs 54,000.

How to open a Account in NPS? Click Here to Know

Conditions for withdrawal

  1. One can withdraw 20 percent of the total amount before 60 years but he/she must buy annuity with 80 percent of the body.
  2. In 2016, the NPS allowed withdrawal of up to 25% of contributions for specified reasons, if the scheme is at least 3 years old with certain conditions.
  3. One can withdraw the complete amount if the pension collected is less than INR 2,00,000.

National Pension Scheme Tax benefits

  1. Up to Rs. 150,000 under Section 80CCD(1). The benefit is additionally limited at 10% of basic salary. The benefit under Section 80C, Section 80CCC and Section 80CCD(1) is limited at Rs 150,000.
  2. Contribution Up to Rs 50,000 under Section 80CCD(1B). This is over and above tax benefit under Section 80CCD(1b).
  3. Employer co-contribution up to 10% of basic and DA without any upper cap in terms of amount is tax free income in hands of employees under Section 80CCD.

Pension fund managers in National Pension Scheme:

  1. SBI Pension Funds
  2. LIC Pension Fund
  3. UTI Retirement Solutions
  4. HDFC Pension Fund
  5. ICICI Prudential Pension Fund
  6. Kotak Pension Fund
  7. Reliance capital Pension Fund

References

  1. “NPS: Now you can open a NPS account completely online via Aadhar without sending physical documents – The Economic Times”.
  2.  “Tax parity for NPS and EPF members is a welcome step – The Economic Times”. 
  3. “Budget 2017: Arun Jaitley likely to make National Pension system totally tax-free”. FinancialExpress.com. 16 January 2017.
  4.  “10 things Arun Jaitley can do to make it a Budget for the middle class”. 17 September 2017. The Economic Times.
  5. “NPS outshines MFs, benchmark indices in 2016 – The Economic Times”.
  6. “NPS: Now you can open a NPS account completely online via Aadhar without sending physical documents – The Economic Times”.
  7. “Union Budget 2017 provides new benefits to NPS subscribers”. FinancialExpress.com. 1 February 2017.
  8. “PFRDA bars third party payments in Tier II accounts of NPS”. 17 September 2017. The Economic Times.
  9. “Retirement options: Check out the changes”. Retrieved 17 January 2017.
  10.  “NPS sees manifold increase in AUM, subscribers since 2010”. 17 September 2017. The Economic Times.

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