NPS ( National Pension Scheme) |
Introduction |
The National Pension Scheme (NPS) also known as New Pension Scheme for Central Government employees was introduced on 1st January 2004 and is mandatory for all new recruits who joined the service on or after 1st January 2004. It is a defined contribution pension scheme, where both the employee and the employer contribute a certain percentage of the employee's basic pay and dearness allowance towards the scheme. A unique 16-digit PRAN ( Permanent Retirement Account Number) is allotted to the subscribers of NPS. NPS is named under Pension Fund Regulatory and Development Authority Act, 2013 It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and aims to provide retirement benefits to all citizens of India, including the unorganized sector workers. NPS was made available to All citizens of India from 1st May 2009, individuals can contribute to their pension account during their working life, and the accumulated savings can be withdrawn as a lump sum or in the form of an annuity after retirement. The NPS also allows individuals to choose their pension fund manager and investment options, providing flexibility and transparency. For government employees w.e.f 01.04.2019, the monthly contribution to be paid by the employee shall be 10 percent of the Basic plus Dearness Allowance and 14% of Basic plus Dearness Allowances shall be contributed by the government. During EOL, including on medical grounds, there shall no contribution either from the government servant or from government. |
Eligibility | Any Indian citizen between the age of 18 and 65 years can join the NPS. Even Non-Resident Indians (NRIs) are eligible to join the scheme. |
Types of accounts | There are two types of accounts under the NPS - Tier 1 and Tier 2. Tier 1 account is the primary retirement account, which has restrictions on withdrawal and offers tax benefits. Tier 2 account, on the other hand, is an optional savings account, which offers higher liquidity but has no tax benefits. |
Contributions | For government employees w.e.f 01.04.2019 the monthly contribution to be paid by the employee shall be 10 percent of the Basic plus Dearness Allowance and 14% of Basic plus Dearness Allowances shall be contributed by the government. Private individuals can choose to contribute a minimum of Rs. 500 per month or Rs. 6,000 per year. There is no maximum limit on contributions, but tax benefits are available only on contributions up to Rs. 2 lakh per year. |
Pension Fund Managers (PFMs) | Individuals can choose from eight PFMs appointed by the PFRDA to manage their pension funds. The PFMs invest the contributions in a mix of equity, government securities, and corporate bonds. |
Annuity | At the time of retirement, the employee can withdraw up to 60% of the accumulated corpus as a lump sum, and the remaining 40% must be used to purchase an annuity from an insurer. The annuity is a fixed amount paid by the insurer for the rest of the employee's life. |
Withdrawal | On retirement, individuals can withdraw up to 60% of the accumulated savings as a lump sum, and the remaining 40% must be used to purchase an annuity from an insurer. Partial withdrawals are also allowed under certain conditions. A subscriber permitted a partial withdrawal from the pension Fund under NPS, if he should have been in the NPS for a period of At least 3 years in government service. A maximum 3 times withdrawals under NPS is allowed in the entire tenure of the subscription. A partial withdrawal of accumulated pension wealth of the Subscriber not exceeding 25% of the contributions made by the Subscriber is permitted. |
Tax Benefits | Contributions to the NPS are eligible for tax benefits under Section 80C of the Income Tax Act, 1961, up to a maximum of Rs. 1.5 lakh per year. An additional deduction of up to Rs. 50,000 is available under Section 80CCD(1B) for contributions to the NPS. However, the lump sum withdrawal and annuity payments are taxable. |
Some Important Points to remember |
1. Within how many days should the option be exercised by the NPS Subscriber of Government Sector for continuing to contribute to his retirement account beyond the age of 60 years or superannuation, as the case may be to the Central Recordkeeping Agency : 15 days prior 2. Death and retirement gratuity shall be as per Rule 50 of CCS (Pension) Rules, 1972. 3. Invalid Pension, as per Rules 38 and 49 of CCS (Pension) Rules, 1972. 4. Family Pension (including enhanced family pension) - As per Rule 54 of CCS (Pension) Rules, 1972. 5. Can a retired Subscriber of NPS withdraw lump sum amount in phased manner : Yes, up to 10 instalments over the period from 60 years to 70 years. 6. During EOL (Extra Ordinary Leave) including on medical grounds, no contribution either from government servant or from government. |
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