National Pension Scheme(NPS)
The National Pension Scheme (NPS) is a social security initiative by the Central Government. This pension programme is open to employees from the public, private and even the unorganised sectors except those from the armed forces.
The scheme encourages people to invest in a pension account at regular intervals during the course of their employment. After retirement, the subscribers can take out a certain percentage of the corpus. As an NPS account holder, you will receive the remaining amount as a monthly pension post your retirement.
Earlier, the NPS scheme covered only Central Government employees. Central Government employees joining on or after 01-01- 2004 are mandatorily covered under the NPS. Now, however, the PFRDA has made it open to all Indian citizens on a voluntary basis.
The NPS scheme holds immense value for anyone who works in the private sector and requires a regular pension after retirement. The scheme is portable across jobs and locations, with tax benefits under Section 80C and Section 80CCD.
Types of NPS Accounts
Types of NPS Accounts
What is Tier 1 NPS Account?
This is the basic and mandatory NPS account that is opened to save up for retirement. From this account, one cannot withdraw before 60 years of age. Nonetheless, upon attaining 60 years of age, the pensioner can withdraw 60% of his investments and utilise the rest to buy an annuity. The annuity plan will enable an individual to get fixed premiums at regular intervals.
Tax Deduction & Exemption
Investments under this account are tax deductible up to ₹2 lakhs per annum under Section 80C of Income Tax. An additional ₹50,000 may be deducted per annum under Section 80CCD (1B). However, as per the Union Budget 2019 announcements, 60% of the accumulated corpus withdrawn at the time of retirement would enjoy tax exemption from the Fiscal Year 2020-21.
Contribution
Furthermore, while opening a Tier-I account, an individual will receive a Permanent Retirement Account Number after making a minimum contribution of ₹500. To sustain an NPS Tier-I account, one needs to contribute a minimum of ₹1000 per annum.
Account Opening
Account Opening
To open this account, one needs to present identity, address and age proof documents and fill up the respective registration form.
Contribution
To open a Tier-II NPS account, one needs to make a contribution in multiples of ₹ 250. Although there are no tax exemptions related to this kind of account, both the Tier-I and II NPS accounts have similar fund management costs and investment choices.
What is Tier 2 NPS Account?
This is a voluntary retirement and savings account that may be opened if an individual already has a Tier-I account. Withdrawals or contributions to and from this account can be made at any time at the pensioner’s convenience. The investments on this account have no tax deductions for private-sector or self-employed personnel. Opening a Tier-II account requires an individual to have an existing Tier-I account, he does not need to present KYC documents.
LOAN AGAINST NPS
A NPS subscriber cannot obtain a loan against their NPS account. Though the Subscriber has the option of a partial withdrawal under specific circumstances. The Subscriber is not required to provide any supporting documentation in order to request a partial withdrawal (with respect to the indicated withdrawal reason).
WITHDRAWAL RULES
You can withdraw up to a maximum of 3 times during the entire tenure of your NPS account. You can withdraw up to 25% of the contribution in NPS at any time, excluding those made by your employer,
