A guide to India's National Pension System (NPS)
The National Pension System (NPS) is a government-sponsored pension scheme in India. It aims to ensure financial security and stability for citizens in retirement. It's a voluntary, long-term retirement investment plan under the Pension Fund Regulatory and Development Authority (PFRDA). Focusing on systematic savings during a person's working life, NPS is an essential tool for effective retirement planning.
Enrollment made easy
Indian citizens aged 18 to 65 can join the National Pension System online through the eNPS portal or offline at any Point of Presence-Service Provider. They must submit Know Your Customer documents and a subscriber form. An initial ₹500 is required for Tier I accounts. These are non-withdrawable until retirement or reaching age 60, with some exceptions.
Investment choices explained
The National Pension System offers Tier I and Tier II accounts. Tier I is for retirement savings, while Tier II is a voluntary supplement for active Tier I members. Subscribers can choose the Active Choice to allocate assets among equity, corporate bonds, government securities, and alternative investments. Or they can opt for the Auto Choice, which allocates based on age automatically.
Tax benefits unveiled
Investments in NPS qualify for tax benefits under Section 80CCE of the Income Tax Act up to ₹1.5 lakh annually. This applies to both salaried and self-employed subscribers. In addition, an exclusive deduction of up to ₹50,000 under Section 80CCD(1B) is available. This is for contributions toward NPS, and it is over and above the limit allowed under Section 80C.
Withdrawal norms simplified
Upon reaching 60 or retiring, subscribers can withdraw up to 60% of their corpus tax-free. The remaining 40% must buy an annuity for a regular retirement income. Exiting the National Pension System before 60 or for reasons like a critical illness involves different withdrawal and tax rules. This knowledge aids in making informed retirement planning decisions.
