What is NPS And Who Should Invest in It?

The Buyt Desk

National Pension Scheme is a retirement pension plan. You make a monthly contribution in this pension plan and receive a lump sum when you turn 60. But do note that the corpus that you accumulate will not be returned entirely. When you turn 60 you can withdraw 60% of the amount and with the 40%, you have to buy an annuity plan. National Pension Scheme offers social security to people, and this is an initiative taken by the Central Government of India for its citizens. This pension program is open to all people working in the public, private, or even the unorganized sector.

Who is Eligible To Invest In NPS?

When NPS was first launched in India in 2004, it was made available only for people working in public sector organizations. Looking at the benefits associated with NPS, the Government Of India extended it for everyone working in any sector, even the unorganized sector in May 2009. The Government has made three categories in which people can subscribe to NPS and contribute.

Statutory contribution by government employees
Statutory contribution by corporate employees
Voluntary basis.

The NPS is open for NRIs as well. Any NRI who wants to invest in NPS can contribute by submitting all required documents. The minimum age requirement for investing in NPS is 18 years and the maximum is 65 years.

Where does NPS invest your money?

The NPS is a market-linked investment plan, thus it provides the option to investors to invest in a mix of government securities, equity, and corporate bonds. For the same reason, the return on NPS investment is never fixed. Investors can take advantage of these options and ensure a good return from their investment by investing in a mix of all the options available.

Maturity of NPS

When it comes to the period of investment, NPS focuses on the retirement product. One could keep investing until the age of 60 years and can continue the same until 70 years of age by extending the plan. At the time of maturity of the investment, the NPS account holder can withdraw up to 60% of their lump sum corpus, while with the 40 % corpus they have to purchase an annuity plan which will be the source of regular income for their future.

The monitoring body of NPS is NPS trust. It was set by pension fund regulator PFRDA which is a government body. The NPS fund gets managed by public and private management companies that are appointed by PFRDA. Although NPS funds are managed by public and private organizations, nevertheless, PFRDA strictly watches every move of these organizations.

How NPS saves your tax?

Your investment in NPS will also give you a tax benefit. Under section 80CCD1 of the Income Tax Act 1961, you can claim a deduction of up to Rs 1.5 lakh which is a part of 80C. Apart from this, you can get an additional deduction of Rs 50, 000 under section 80CCD(1B)for your contribution over and above the Rs 1. 5lakh deduction. . Thus, NPS investors can get a Rs 2 lakh deduction through NPS investment. You will get this benefit only if you invest 10% of the salary and if the taxpayer is self-employed then the limit is 20% of the gross income.

The lump-sum amount i.e. 60% of total corpus investors receive after maturity is exempted from tax, however, annuity income that the person receives monthly is taxable.

How can you open an NPS account?

There are two ways to get an NPS account, the employer can open an account for you and you invest a part of your salary in it. If this option is not available, you can voluntarily open an NPS account, with Point of Presence, or online via eNPS. The PoPs are PFRDA approved brokerage houses, banks, and other financial intermediaries.

What Is Tier I and Tier II In NPS?

The Tier I NPS commence with the opening of the NPS account. After account opening, the investor receives a PRAN number (Permanent Retirement Account Number). The investment in this account gets locked in till the age of 60 years. The NPS Tier I allow investors to save and invest to claim available tax deductions under the Income-tax version sections.

The NPS Tier II is available to only those who have Tier 1 account. This is a voluntary account having more flexibility than Tier 1. It has the flexibility of withdrawal and exit as per the investor’s requirement. The minor difference between Tier I and Tier II account are