The National Pension Scheme (NPS) is a voluntary and long-term retirement savings scheme introduced by the Government of India in 2004. It is regulated and administered by the Pension Fund Regulatory and Development Authority (PFRDA).
Here’s what you need to know about the National Pension Scheme (NPS):
- Objective: The primary objective of the NPS is to provide retirement income to Indian citizens. It aims to promote systematic saving during an individual’s working life and offers a pension after retirement.
- Eligibility: The NPS is open to all Indian citizens between the ages of 18 and 65. Non-resident Indians (NRIs) are also eligible to join the scheme. However, the NPS is mandatory for central government employees who joined service on or after January 1, 2004.
- Tiered Structure: The NPS operates under a tiered structure comprising Tier-I and Tier-II accounts.
- Tier-I Account: This is a mandatory account with certain restrictions on withdrawal. It is primarily meant for retirement savings and offers tax benefits. Withdrawals are allowed only after the age of 60, subject to certain conditions.
- Tier-II Account: This is an optional account that provides flexibility in terms of withdrawals. Unlike Tier-I, there are no restrictions on withdrawals from Tier-II accounts. However, it does not offer the same tax benefits as Tier-I.
- Contribution and Investment: Individuals can contribute to their NPS accounts regularly throughout their working lives. The minimum contribution at the time of account opening is ₹500, and the minimum annual contribution is ₹1,000. There is no maximum limit on contributions. The contributions are invested in various pension fund options, including equity, corporate bonds, and government securities, based on the subscriber’s preference.
- Pension Fund Managers (PFMs): NPS allows subscribers to choose their Pension Fund Managers (PFMs) from a list of authorized entities. The PFMs manage the investments made in NPS and provide returns based on the market performance.
- Tax Benefits: NPS offers tax benefits to encourage long-term retirement savings. Contributions made to the NPS are eligible for tax deductions under Section 80CCD(1) of the Income Tax Act, up to a maximum of 10% of the individual’s salary (for employees) or gross income (for self-employed individuals). An additional tax deduction of up to ₹50,000 is available under Section 80CCD(1B). However, withdrawals from the NPS are taxable, except for partial withdrawals allowed under certain circumstances.
- Annuity and Withdrawals: Upon retirement, subscribers can use the accumulated corpus in their Tier-I account to purchase an annuity from an Insurance Regulatory and Development Authority (IRDA)-regulated insurance company. The annuity provides a regular pension to the subscriber. A portion of the accumulated corpus can also be withdrawn as a lump sum at the time of retirement, subject to certain conditions.
- Portability: NPS offers portability, allowing subscribers to contribute from anywhere in India and change their PFMs if desired. This feature gives flexibility to individuals who change jobs or locations during their working lives.
- Online Access: NPS provides an online platform, known as the Central Recordkeeping Agency (CRA), where subscribers can access their NPS accounts, track contributions, and make changes to their investment preferences.
It’s important to note that the details and features of NPS may be subject to change, and it’s advisable to refer to the official PFRDA website or consult a financial advisor for the most up-to-date information.
