National Pension Scheme – Benefits, Eligibility, How To Join, and Everything You Need To know

    The National Pension System (NPS) has emerged as a top contender for those seeking an avenue for retirement planning. Boasting a diverse range of investment options and the ability to choose from a selection of pension fund schemes, the NPS has become a go-to choice for many investors looking to secure their financial future.

    One key factor that makes NPS an attractive option is its ability to provide tax-saving opportunities for contributors. This has not gone unnoticed by the State Bank of India (SBI), the largest lender in the country, which has encouraged its customers to take advantage of the scheme’s tax-saving provisions.

    As investors look towards the future, it’s clear that NPS provides a solid option for those seeking financial stability and security during their retirement years. With its array of investment choices and the support of major financial institutions, the NPS stands out as a viable choice for investors looking to secure their financial future.

    What is National Pension Scheme (NPS)?

    National Pension System (NPS) is a retirement savings scheme that aims to help subscribers plan for their future through systematic savings during their working life. The scheme encourages citizens to save for their retirement and seeks to provide a sustainable solution to the issue of ensuring adequate retirement income for every Indian.

    Under the NPS scheme, individual savings are pooled into a pension fund that is managed by professional fund managers regulated by the Pension Fund Regulatory and Development Authority (PFRDA). These funds are then invested in a diversified portfolio comprising Government Bonds, Bills, Corporate Debentures, and Shares, as per approved investment guidelines. Over time, these contributions accumulate and grow based on the returns earned on the investments made.

    At the time of exit from the scheme, subscribers can use the accumulated pension wealth to purchase a life annuity from a PFRDA-empaneled Life Insurance Company. They can also choose to withdraw some of the accumulated pension wealth as a lump sum.

    NPS aims to inculcate a habit of saving for retirement amongst Indians while providing them with a secure and sustainable source of income during their golden years. With the support of PFRDA-regulated professional fund managers, subscribers can rest assured that their investments are being managed with the utmost care and attention. By choosing NPS, Indians can take control of their financial future and ensure that they are well-prepared for their retirement.

    National Pension Scheme Benefits

    The National Pension System (NPS) offers a multitude of benefits for Indians who are planning for their retirement. Here are some of the key advantages of NPS:

    1. Flexible: NPS offers a range of investment options and pension fund choices to ensure that subscribers can reasonably plan their investments and monitor the growth of their pension corpus. In addition, subscribers have the flexibility to switch between investment options or fund managers to maximize their returns.
    2. Simple: Opening an account with NPS provides subscribers with a Permanent Retirement Account Number (PRAN), which remains with them throughout their lifetime. The scheme is structured into two tiers – the Tier-I account, which is a non-withdrawable permanent retirement account, and the Tier-II account, which is a voluntary withdrawable account.
    3. Portable: NPS provides seamless portability across jobs and locations, which means that subscribers can shift to a new job or location without leaving behind their accumulated pension wealth. This is a hassle-free arrangement that ensures subscribers can build their corpus without any interruptions.
    4. Well-regulated: NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which ensures that the scheme is transparent and well-monitored. The account maintenance costs under NPS are the lowest compared to similar pension products worldwide, which means that subscribers can save more towards their retirement.
    5. Low cost and power of compounding: The low account maintenance charges under NPS, coupled with the power of compounding, enable subscribers to accumulate a substantial pension corpus over the long term. This ensures that they can enjoy a comfortable retirement without any financial worries.
    6. Ease of access: The NPS account is easily manageable online, and subscribers can open an account through the eNPS portal. Further contributions can also be made online through the eNPS portals of CRAs NSDL CRA, Kfintech CRA, and CAMS CRA.

    Investment Options

    • Subscribers can invest in a mix of equity, government debt, alternate investment funds, and corporate debt.
    • Equity allocation is capped at 75 per cent until the age of 50, after which it gradually decreases while debt allocation increases.

    NPS Tier-I Account

    • The Tier-I account is a mandatory pension account that offers tax benefits.
    • The minimum contribution required during account opening is Rs. 500.

    NPS Tier-II Account

    • The Tier-II account is an optional investment account with no tax benefits but allows for the withdrawal of the corpus at any time.
    • The minimum contribution required during account opening is Rs. 1,000.

    Tax Benefits under the Tier I account of NPS

    Employee Contribution:

    • Tax deduction under Section 80CCD (1B) on the contribution of Rs. 50,000.
    • Tax deduction under Section 80CCE for investments (10% of Basic & DA) within an overall limit of Rs. 1.50 lacs.

    Employer Contribution:

    • Tax deduction up to 10% of salary (Basic + DA) under Section 80CCD (2) subject to a monetary ceiling of Rs.7.5 lacs (includes PF, Superannuation, etc.)

    Exit Options

    On attaining the age of 60 years:

    • A minimum of 40% of the corpus must be invested in the Annuity Scheme.
    • Around 60% of the corpus can be commuted/withdrawn in lump sum/ staggered anytime up to the age of 75 yrs; the amount is tax-free.
    • If the total corpus is equal to or less than Rs. 5.00 Lacs, then the entire corpus can be withdrawn.

    Before 60 years of age (after completion of 5 years):

    • 20% of the corpus can be withdrawn in a lump sum.
    • 80% of the corpus will be invested in an ‘Annuity Scheme’.
    • If the total corpus is equal to or less than Rs. 2.50 Lacs, then the entire corpus can be withdrawn.

    Part Withdrawals:

    A partial withdrawal of accumulated pension wealth, not exceeding 25% of the employee contributions, is allowed after a lock-in period of 3 years.

    • Subscribers are allowed to withdraw a maximum of three (3) times during the entire tenure, subject to conditions prescribed by the Regulator.

    The NPS Tier I account offers a range of tax benefits to subscribers, making it an attractive option for retirement savings. With flexible exit options and the ability to make partial withdrawals, subscribers can customize their retirement planning according to their unique needs.

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