“National Pension Scheme”

What is National Pension Scheme?

The National Pension Scheme (NPS) is a voluntary, defined-contribution retirement savings scheme initiated by the Indian government in 2004. It allows individuals to save a portion of their income and earn a regular income through annuity (pension) after their retirement. It provides a retirement corpus to individuals, which they can manage and increase with their regular savings. The NPS also provides tax benefits throughout the investment period.

Key Components of National Pension Scheme

The National Pension Scheme includes two major components: Tier I and Tier II accounts. A Tier I account is managed by the Pension Fund Regulatory and Development Authority (PFRDA). This is a mandatory account with no withdrawals allowed except for retirement. A Tier II account is optional and allows withdrawals during the accumulation phase. It also offers a variety of investment options such as equities, government bonds, and so on.

Tax Benefits of National Pension Scheme

The National Pension Scheme offers several tax benefits. Contributions up to Rs. 1.5 lakh per annum are eligible for tax deduction under Section 80 C. In addition, up to Rs. 50,000 per annum can be claimed as a deduction under Section 80CCD (1B), which is over and above the Rs. 1.5 lakh limit.

FAQs

Who is eligible to participate in NPS?

Any Indian citizen between the age of 18-65 years can open an NPS account. The account can be opened online or at any Point-of-Presence service provider.

How does the withdrawal process work when an individual retires?

Upon retirement, a subscriber needs to withdraw a minimum of 40% of the corpus accumulated in the NPS account and can withdraw the remaining corpus in instalments over a period of 10 years.

What are the benefits of National Pension Scheme?

The benefits of NPS include:

• Long-term savings plan: The NPS provides a long-term savings plan which serves as an additional source of income after one’s retirement.
• Flexibility: The NPS allows individuals to choose from various investment options such as equity and government bonds.
• Tax benefits: Contributions to NPS are eligible for tax deduction under Section 80C and 80CCD (1B).
• Portability: NPS can be accessed from any corner of India.
• Low cost: The NPS has low administrative fees and charges.