Introduction-
Benefits of National Pension Scheme (NPS)- Government sponsored pension scheme was launched in January 2004 for government employees but it was expanded for all sections in 2009.
As before, NPS subscribers could withdraw 60% of the corpus, with 40% of mandatory being deposited in annuity schemes. Of the 60%, one-third was taxable and two-third was tax exempt. After the changes, NPS subscribers will now be able to withdraw 60 per cent of the accumulated corpus without having to pay any tax on it. Taken in combination with the fact that the 40% to be deposited in annuities was already tax exempt, the change means that the entire withdrawal from NPS will now be tax free.
The government’s contribution to National Pension Scheme (NPS) to 14 per cent of basic salary from the current 10 per cent. Minimum employee contribution will, however, remain at 10 per cent, earlier subscribers and the government each contributed 10%.
Main Highlights as above-
- The hike is for those who joined the services in or after January 2004.
- NPS subscribers will now be able to withdraw 60 per cent of the accumulated corpus without having to pay any tax on it.
- Enhancement of the mandatory contribution by the Central Government for its employees covered under NPS Tier-I from the existing 10% to 14%.
- Contribution by the Government employees under Tier-II of NPS will now be covered under Section 80 C for deduction up to Rs. 1.50 lakh for the purpose of income tax at par with the other schemes such as General Provident Fund, Contributory Provident Fund, Employees Provident Fund and Public Provident Fund provided that there is a lock-in period of 3 years.
Types of NPS Account-
NPS offers two kinds of accounts: tier 1 and tier 2. The tier 1 account is non-withdrawable till the person reaches the age of 60. The Tier II NPS account works like a savings account from where the subscriber is free to withdraw money as and when required. The details are as under-
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Particulars
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Tier-I Account
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Tier-II Account
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Status
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Default
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Voluntary
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Minimum contribution
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Rs. 1,000 per financial year, whereas each contribution is required to be a minimum of Rs. 500
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Rs 250
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Maximum contribution
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No limit
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No limit
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Income Tax exemption
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Additional deduction for investment up to Rs. 50,000 in Tier 1 account under Section 80CCD (1B). This is over and above the deduction of Rs. 1.5 lakh allowed under Section 80C i.e. totaling up to Rs. 2.00 lakh in any financial year.
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None
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Permission to withdrawal
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Not permitted
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Permitted any time or even you can transfer funds to pension account (Tier 1) any time.
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Partial Withdrawal under NPS-
Following are the conditions of Conditional Withdrawal:
- Subscriber should be in NPS at least for 3 years
- Withdrawal amount will not exceed 25% of the contributions made by the Subscriber
- Withdrawal can happen maximum of three times during the entire tenure of subscription.
- Withdrawal is allowed only against the specified reasons, for example;
- Higher education of children
- Marriage of children
- For the purchase/construction of residential house (in specified conditions)
- For treatment of Critical illnesses
Exit & NPS withdrawal -
As per PFRDA (Exits & Withdrawals under NPS) Regulations 2015, in following conditions Subscriber can exit from NPS:
A. At the age of 60 or Superannuation - When a subscriber reaches the age of Superannuation/attaining 60 years of age, he or she will have to use at least 40% of accumulated pension corpus to purchase an annuity that would provide a regular monthly pension. The remaining funds can be withdrawn as lump sum.
If the total accumulated pension corpus is less than or equal to Rs. 2 lakh, Subscriber can opt for 100% lump sum withdrawal.
B. Pre-mature Exit - In case of pre-mature exit (exit before attaining the age of superannuation/attaining 60 years of age) from NPS, at least 80% of the accumulated pension corpus of the Subscriber has to be utilized for purchase of an Annuity that would provide a regular monthly pension. The remaining funds can be withdrawn as lump sum. However, you can exit from NPS only after completion of 10 years.
If the total corpus is less than or equal to Rs. 1 lakh, Subscriber can opt for 100% lump sum withdrawal.
C. Upon Death of Subscriber - The entire accumulated pension corpus (100%) would be paid to the nominee/legal heir of the subscriber.
PFRDA regulates the operations of the NPS, and they offer both an online as well as an offline means to open this account.