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What is National Pension Scheme (NPS)?

The National Pension Scheme (NPS) is a government-sponsored state welfare scheme. Except for those in the military forces, this pension scheme is available to staff from the government, private, and even informal sectors. The program encourages employees to invest in a pension fund at periodic intervals throughout their careers. After retiring, members can withdraw a portion of the fund. If you have an NPS account, you will get the remaining amount as a monthly pension once you retire. Articles also discusses on Features and Benefits of NPS and Tax Advantages of NPS.

 

Features and Benefits of NPS

Flexible

NPS provides a variety of financing options and a selection of Pension Funds (PFs) to help plan and monitor the growth of assets and the pension fund. Members have the option of switching from one investment decision to the other and from one fund manager to the other.

 

Simple

When you open an account through NPS, you’ll get a PRAN (Permanent Retirement Account Number), which is a one-of-a-kind number that stays with you for the rest of your life. The plan is divided into two parts:

Tier-I account: It is a non-withdrawable fixed retirement account through which the subscriber’s monthly payments are deposited and invested according to the subscriber’s chosen fund manager.

Tier-II account: It is a voluntary withdrawable account that can only be used if the subscriber has an active Tier I account. Withdrawals are allowed from this account according to the subscriber’s needs as and when they arise.

 

Portability

NPS is portable, allowing users to move between jobs and places with ease. Individual subscribers would be able to transfer to a new job/location without worrying about losing their savings, as is the case with many pension systems in India. What is National Pension Scheme (NPS).

 

Easy Accessibility

You may manage your NPS account online. Through the online NPS site, you may create an NPS account.

 

Tax Advantages of NPS

Only Tier 1 account investments are eligible for a deduction against your NPS investment; thus, keep this in mind while investing.

 

Income Tax Benefits under Section 80C

NPS is one of the investment alternatives provided under Section 80C, where you may invest and save tax. This category has a deduction maximum of Rs. 1.5 lakhs, then you can invest the entire sum of money in NPS and collect the benefit if you desire.

Income Tax Benefits under Section  80CCD(1B)

This is a special tax break available solely to NPS subscribers. You can claim tax deductions for investments up to Rs 50,0000 under this clause. This is in addition to the deduction available under Section 80C.

So, by investing in NPS, you may claim a tax deduction of up to Rs 2 lakh – Rs 1.5 lakh through Section 80C as well as another Rs 50,000 under Section 80CCD (1B). That implies that if you are in the 30% income tax bracket, you may save Rs 62,400 in taxation.

Income Tax Benefits under Section 80CCD(2)

Because this benefit is based on the employer’s payments, it is only available to salaried employees and not to self-employed people. This provision allows state employees to deduct 14% of their pay as a deduction. Employees in the private industry, on the other hand, are limited to a maximum of 10% of their annual income.

Bottom line

The tax benefits of NPS might help you lower your taxable income significantly. It should not, however, be the sole reason you invest in it. Because if it’s minimum cost and flexibility, it’s an excellent option for building a retirement fund. So be sure you’re investing for the right reasons.

Also read:

• National Pension Scheme – NPS
• NPS Tier II – Steps to Activate Tier II Account
• NPS Entities
• Online Exit Process for ENPS Subscribers
• NPS – Open NPS Account
• NPS portal Login, view statement