National Pension Scheme Features, Benefits, Eligibility, Interest Rate

National Pension Scheme (NPS) Key Features

1. Regulated: Governed by the Pension Fund Regulatory and Development Authority (PFRDA), a body under the Ministry of Finance, the NPS ensures transparent operations. Regular monitoring by the NPS Trust guarantees compliance with established guidelines.
2. Voluntary: Open to all Indian citizens, the NPS is a voluntary savings initiative. Subscribers can invest any amount at their convenience.
3. Flexibility: Subscribers enjoy the freedom to choose or modify their Point of Presence (POP), investment strategy, and fund manager. This flexibility allows optimizing returns by navigating various asset classes (Equity, Corporate Bonds, Government Securities, and Alternate Assets) and fund managers.
4. Economical: Recognized as one of the most cost-effective investment products, the NPS offers an economical option for long-term financial planning.
5. Portability: The NPS account and PRAN remain constant regardless of changes in employment, location, or state. This portability ensures continuity and ease of management.
6. Superannuation Fund Transfer: NPS account holders can seamlessly transfer their Superannuation funds to their NPS account, avoiding any tax implications (subject to relevant authorities' approval).

Functioning of National Pension Scheme

• Upon successful enrollment in the NPS, the subscriber is assigned a Permanent Retirement Account Number (PRAN).
• NSDL-CRA notifies the subscriber through email and SMS alerts upon the creation of the PRAN (Central Record Keeping Agency).
• The subscriber consistently contributes to the NPS during their working years, building a retirement fund.
• Upon retirement or exit from the scheme, a portion of the corpus is invested in an annuity to provide a monthly income post-retirement.

Eligibility for National Pension Scheme

• Any Indian citizen aged 18 to 60 can open an NPS account with no income-based restrictions.
• NRIs can open NPS accounts through the NPS Lite scheme, with specific limitations.
• Government employees are covered under NPS.
• Under the Atal Pension Yojana, individuals aged 18 to 40 without pension coverage can enroll for NPS Lite, guaranteeing a minimum pension after 60 years.
• Self-employed professionals and employers can also subscribe to NPS.

Types of NPS Accounts

All Citizen Model

• Individual NPS account where the subscriber is the sole contributor.
• Entry age: 18 to 70 years.
• Minimum initial contribution: Rs. 500.
• Minimum annual contribution: Rs. 6,000.
• No maximum limit on contributions.

Corporate Model

• Both the subscriber and the employer contribute to the NPS account.
• Employers must register for corporate NPS for employees to avail benefits.
• No regulatory minimum contribution for employees.
• No maximum limit on employer contributions.

Pension Fund Regulatory and Development Authority (PFRDA)

• Established on August 23, 2003, to regulate NPS.
• Aims to ensure old-age income security by regulating pension funds, protecting subscribers' interests, and addressing associated issues.

Pension Fund Managers (PFMs)

• Aditya Birla SunLife Pension Management Limited
• HDFC Pension Management Company Limited
• ICICI Prudential Pension Funds Management Company Limited
• Kotak Mahindra Pension Fund Limited
• LIC Pension Fund Ltd
• SBI Pension Funds Private Limited
• UTI Retirement Solutions Limited

National Pension Scheme (NPS) Tax Benefits

Employee tax benefits for self-contribution

Employees contributing to NPS can avail the following tax benefits on their contributions:

1. Tax deduction of up to 10% of pay (Basic + DA) under Section 80CCD(1), capped at Rs.1.5 lakh under Section 80CCE.
2. Additional tax deduction of up to Rs.50,000 under Section 80CCD(1B), in addition to the overall limit of Rs.1.5 lakh under Section 80CCE.

Employee tax benefits on employer contributions: Employer contributions to an employee's NPS are eligible for tax deduction, up to 10% of salary (basic plus DA) or 14% of salary if contributed by the Central Government under Section 80CCD(2). This is beyond the Rs.1.5 lakh limit provided by Section 80CCE.

Tax benefits for self-employed individuals

Self-employed individuals contributing to NPS can claim the following tax benefits on their contributions:

1. Tax deduction of up to 20% of gross income under Section 80CCD(1), with a total limit of Rs.1.5 lakh under Section 80CCE.
2. Additional tax deduction of up to Rs.50,000 under Section 80CCD(1B), along with the overall limit of Rs.1.5 lakh under Section 80CCE.

Tax Benefits on NPS Withdrawals

1. Partial Withdrawal: You won't pay tax on up to 25% of your self-contributed NPS amount when making partial withdrawals, following certain conditions defined by PFRDA (Pension Fund Regulatory and Development Authority) in section 10(12B).
2. Annuity Purchase: Buying an annuity at 60 is tax-free under Section 80CCD(5), but the subsequent annuity income is taxed as per Section 80CCD(3).
3. Lump Sum Withdrawal: Section 10 allows tax exemption on 60% of your NPS funds withdrawn at age 60 or at superannuation.
4. Corporate/Employer Contributions: Employers get tax deductions for contributing to an employee's NPS account, up to 10% of the employee's salary, treated as a 'Business Cost' under section 36(1)(iv)(a).

NPS Withdrawal Rules After Retirement (60 years)

1. Lump Sum Withdrawal: You can take 60% of your total NPS savings as a tax-free lump sum at retirement.
2. Annuity Purchase: The remaining 40% can be used to buy an annuity. If your total corpus is less than or equal to Rs 5 lakh, you can withdraw it all tax-free. If it's above Rs 10 lakh, the tax-free limit is Rs 6 lakh, and the rest must go into an annuity.
3. Tax on Annuity: While lump sum withdrawals are tax-free, annuity income is taxable according to your income bracket. If, for example, your annuity is Rs 4 lakh, it will be taxed at your individual tax rate, distributed over the payment years.