Anurag Saraogi - National Pension Scheme (NPS)

National Pension Scheme

National Pension Scheme (NPS) is a pension cum investment scheme launched by Government of India to provide old age security to Citizens of India. It brings an attractive long-term saving avenue to effectively plan your retirement through safe and regulated market-based return. The Scheme is regulated by Pension Fund Regulatory and Development Authority (PFRDA). Every subscriber investing in NPS gets two options for fund allocation –

Auto Choice: This is a default option for life cycle funds where the funds are automatically managed by the authority based on the age of the investor.
Active Choice: By choosing this option, an investor can choose the percentage of contribution in available asset classes.

Asset Class under NPS –

E – Investments in stocks. The maximum limit is 50%.
C – Corporate debt funds that invest in bonds issued by the companies
G – Investments in gilt funds in government securities.

Account Types under NPS

Tier 1 NPS Account (Mandatory Retirement Account): The initial contribution is Rs 500 and minimum annual contribution is Rs 6000. You make a lump sum payment or pay in instalments of Rs 500 or more.
Tax Deduction (Self Employed) - Deduction up to 10% of gross income under Sec 80 CCD (1) within the overall ceiling of Rs. 1.5 lac under Sec 80 CCE. Additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) under section 80CCD (1B).
Tier 2 NPS Account (Voluntary Savings Account): It is a voluntary saving account where the subscriber is free to withdraw money at any time. In this, the minimum amount to open the account is Rs. 1000.
Tax Deduction (Self Employed) – No Tax Benefit.

Withdrawal –

Attaining 60 Years- When a subscriber reaches the age of attaining 60 years of age, he or she will have to use at least 40% of accumulated pension corpus to purchase an annuity that would provide a regular monthly pension. The remaining funds can be withdrawn as lump sum. (If the total accumulated pension corpus is less than or equal to Rs. 2 lakh, Subscriber can opt for 100% lumpsum withdrawal).
- Tax benefit on Annuity purchase: Amount invested in purchase of Annuity, is fully exempt from tax. However, annuity income that you receive in the subsequent years will be subject to income tax.
- Tax benefit on lump sum withdrawal: After Subscriber attain the age of 60, up to 40 percent of the total corpus withdrawn in lump sum is exempt from tax.
Pre-mature Exit - In case of pre-mature exit (exit before attaining the age of attaining 60 years of age) from NPS, at least 80% of the accumulated pension corpus of the Subscriber has to be utilized for purchase of an Annuity that would provide a regularmonthly pension.The remaining funds can be withdrawn as lump sum.However, you can exit from NPS only after completion of 10 years. (If the total corpus is less than or equal to Rs. 1 lakh, Subscriber can optfor 100% lumpsum withdrawal).
- Tax benefit on Annuity purchase: Amount invested in purchase of Annuity, is fully exempt from tax. However, annuity income that you receive in the subsequent years will be subject to income tax.
- Tax benefit on lump sum withdrawal: After Subscriber attain the age of 60, up to 40 percent of the total corpus withdrawn in lump sum is exempt from tax.
Upon Death of Subscriber - The entire accumulated pension corpus (100%) would be paid to the nominee/legal heir of the subscriber.

Partial Withdrawal -

Subscriber should be in NPS at least for 3 years
Withdrawal amount will not exceed 25% of the contributions made by the Subscriber
Withdrawal can happen maximum of three times during the entire tenure of subscription.
Withdrawal is allowed only against the specified reasons, for example;

Higher education of children
Marriage of children
For the purchase/construction of residential house (in specified conditions)
For treatment of Critical illnesses

Amount withdrawn up to 25 per cent of Subscriber contribution is exempt from tax.