NPS – National Pension System
In this article, we will see the retirement saving scheme is NPS. National Pension System, launched by Government of India in Feb 2004 as a sustainable solution to provide retirement income for Central government employees.
In May 2009, It was available to all Indian citizens. In December 2011, Corporate Sector model was introduced. In 2013, Parliament passes the PFRDA Bill. Interim PFRDA gets fully regulatory powers.
Objective of NPS
Assured Monthly income to ensure dignified life in old age.
Who can join?
- Any employee from public, private sectors can opt for this.
- Aged between 18 to 65 years
Who cannot join?
- Person of Indian Origin
- Overseas Citizen of India
- Person of armed forces
Autonomous body set up by Government of India to develop & regulate pension market
CRA – Central Record Keeping Agency
Role played by National Securities Depository Ltd. (NSDL)
POP – Point of Presence
First point of contact for corporate, subscribers & NPS stakeholders
Responsible for custody of securities. Role played by Stock Holding Corporation of India (SHCIL)
PFM – Pension Fund Manager
Responsible for investment and management of funds
ASP – Annuity Service Provider
Responsible for delivering monthly pension to subscriber
Supervision of PFMs
Role played by Axis Bank: Manages banking functions across various entities of NPS
NPS Account Types
- Individual NPS account, the subscriber(you) is the only contributor.
- Corporate NPS account, a corporate chooses to offer NPS scheme to their employees as a retirement benefit plan. Any employee of a Company that is registered with a CRA for NPS can avail Corporate NPS benefits. In this account Employee and Employer are contributing to the same NPS Account but Employer Contribution is up to 10% of deduction of employee’s Basic Salary + DA which means Contribution made by the employer on behalf of the employee and employer does not contribute any amount directly like EPF.
NPS Account Tiers
- Tier I Account – It is mandatory account which contributions done to this account are eligible for tax benefits
- Tier II Account – It is optional account. Just invest whatever amount and withdraw that amount any time. No tax benefits in this account
PRAN – Permanent Retirement Account Number
After successful registration, you will get a PRAN whish is unique 12 digit number. PRAN welcome Kit will be despatched to your mailing address which will have PRAN Card and Instructions.
- 80 CCD(1) – Individual Subscriber’s contribution can claim tax benefit U/s 80 CCD(1) with in the overall ceiling of Rs. 1.5 lakh U/s 80 CCE. (within 1.5 lakhs)
- 80 CCD(1B) – Individual Subscriber’s contribution upto Rs. 50,000 is eligible for tax exemption U/s 80 CCD(1B). (after 1.5 lakhs)
- 80 CCD(2) – Corporate Contribution (Contribution made by the employer on behalf of the employee) made upto 10% of the employee’s basic salary is eligible for tax exemption U/s 80 CCD(2)
It is an attractive long term saving avenue to effectively plan your retirement through safe and regulated market-based return. Usually we expect 10% return. Investment in both Government and Private Sectors
Withdrawal from NPS Tier I
- Subscriber can withdraw up to 25% of individual contribution amount anytime after 3 years . 2nd and 3rd withdrawal will be allowed in consecutive years or thereafter.
- Withdrawal will be only for specific purposes like Child’s marriage, Higher education, treatment of some of the critical illnesses etc. as per the PFRDA guidelines
If you wan exit NPS before your retirement,
- 20% of Amount is withdrawal with tax free
- 80% of amount is remains purchase Annuity(pension) because it is retirement saving scheme
At the age of 60 (retirement age)
- Minimum 40% of accumulated wealth to be utilized to purchase annuity.
- Maximum 60% of accumulated wealth to be withdrawal either as lumpsum or in a differed manner.
- Differed manner withdrawal can remain invested up to age of 70 years.
- 100% withdrawal if accumulated wealth is 2 lakhs.
- For lumpsum withdrawal, tax free for 40%.
- For Differed manner withdrawal, to reduce/nullify the tax liability before 70 years.
Atal Pension Yojna
NPS and APY are same retirement saving system and investment method. Only difference is contribution amount. NPS contribution no limit whereas APY low contribution based on your age and monthly pension amount you selected which means unorganized sector workers and low daily wages people(coolie).
Individual can have one account in NPS and another account in Atal Pension Yojna