The National Pension System (NPS) is a defined contribution retirement plan regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Individuals aged between 18 and 60 years can invest in this scheme. Lets look at the features which make NPS different from other Saving Schemes.
Users can open a tier I account, which is the primary account that requires a minimum contribution of INR 6,000 per annum. A tier II account is also an option, which requires investing INR 1,000 at the time of opening and the maintenance of a minimum balance of INR 2,000 at the end of the year.
The tier I account has certain limitations on withdrawals. Investors can withdraw only 20% of the accumulated corpus before they reach 60 years and the remainder must be converted to a pension-based annuity. Once the investor reaches the age of 60 years, up to 60% can be withdrawn, while the balance is converted to an annuity. On the demise of the account holder, the nominee/s will receive the amount that has been invested in annuities or as per choice of annuity scheme made by subscriber at time of retirement.
The NPS scheme provides additional tax deductions under section 80 CCD(1B) of the Income Tax Act for an amount up to INR 50,000 per year. This deduction is over and above the INR 1.5 lakhs benefit that is already available under section 80 C. This means investors can enjoy tax deductions for INR 2 lakhs under section 80 C and 80 CCD(1B) of the Income Tax Act.
The contributions made in this scheme can be invested in equities, corporate bonds, or government securities. Investors can only invest 50% of their annual contributions to equities with the balance invested in other asset classes. They also have the option of decreasing their equity exposure as they grow older as a protection against market conditions. The NPS scheme details available on the PFRDA/NPS-CRA website provide important information related to this new pension plan.
Subscribers of the NPS scheme can also open a tier II account. This account is the investment account and comes with no withdrawal limits. The amount available in this account can be withdrawn at any time, as desired by the investors. However, investors must note that the tax benefits are only available on contributions made to tier I accounts.
Another benefit of the NPS is the portability. Subscribers receive a unique Permanent Retirement Account Number (PRAN) when they open the tier I account. This PRAN is fully portable and investors can continue using the same account even if they move from their current location or change their jobs.
This tax saving scheme is also among the least expensive when compared to other available schemes in the country. Because the objective of this pension scheme is to maximize the reach of retirement plans among the lowest strata of the population, the costs related to opening an account and investing in it are very low. This means that the bulk of your contribution is invested, with only a nominal amount being deducted as expenses.
Users can find all the important NPS tax saving schemes detail and other related information on the Internet. In addition, you can make use of an online tax calculator to understand the various benefits offered under the NPS. You should also use these helpful tools to make an intelligent comparison among various savings schemes before making a decision.
thanks for the response, and if my understanding is correct I can still continue NPS tier I account using the same PRAN (minimum contribution INR 1000 per year, to make it live) with my own contribution only and can claim tax benefits under 80CCD (which is max INR 50000 per year, if I deposit the same in the current NPS account).
PS : the employer ‘B’ does not have any NPS provision, so no question for shifting at this moment.
i was working with employer ‘A’ where I got opened NPS tier I account (PRAN allocated) and took 80 CCD benefit in FY15-16, while shifting now to employer ‘B’, I came to know that there is no provision to operate NPS tier I account. my query:
1. can I still continue to hold NPS tier I account?
2. can I deposit some amount in a financial year and claim 80CCD benefits
You can have just 1 PRAN. You cannot have two Tier-I NPS accounts. If you are switching employers and both employers offer NPS, you must transfer your NPS account from old to the new employer.
PRAN is completely portable. You can use the same PRAN across different Government departments, state governments, employers or even after quitting job. So, you can open account as Central Government Employee but continue under All Citizens model after quitting your Government job.
In your case You can continue the account with own contributions. The only difference will be that your employer will not make any further contribution.
PFRDA recently reduced mandatory annual contribution to NPS from Rs 6,000 per annum to Rs 1,000 per annum in Tier-I NPS Account.Hence, you merely need to make contribution of Rs 1,000 to keep your NPS account active. Don’t rush to close your NPS account.
You would be shifting from Corporate Sector to any other sector (Central or State Governments or All Citizens model) or vice versa. Process to do so os:
ere are the steps.
Download the Form for subscriber shifting (Form ISS-1) from CRA website.
Visit the nearest PoP or PoP-SP. Submit the duly completed form with requisite documents to the target PoP-SP.
You can make subsequent contributions through PoP/PoP-SP or eNPS.
you cannot port your NPS account to eNPS i.e. eNPS cannot be your target PoP when you are shifting. You must open account using eNPS portal for it to be your PoP.