NATIONAL PENSION SYSTEM

Objective

  • To provide retirement income to all the citizens.
  • To institute pension reforms and to inculcate the habit of saving for retirement amongst the citizens.

Intended beneficiary

NPS is applicable to:

  • All Indian citizens of India, resident or non-resident and OCIs (added recently) till the age of 65 years.
  • All new employees of Central Government service (except Armed Forces) and Central Autonomous Bodies joining Government service on or after 1st January 2004.
  • All the employees of State Governments, State Autonomous Bodies joining services after the date of notification by the respective State Governments.
  • Any other government employee who is not mandatorily covered under NPS can also subscribe to NPS
  • All citizens i.e., private employees and unorganized sector workers.
  • Non Resident Indians (NRIs) with bank accounts in India

Salient features

  • It is administered by Pension Fund Regulatory and Development Authority (PFRDA)
  • Under the NPS, the individual contributes to his retirement account and his employer can also co-contribute.
  • It is designed on defined contribution basis wherein the subscriber contributes to his account, there is no defined benefit that would be available at the time of exit from the system and the accumulated wealth depends on the contributions made and the income generated from investment of such wealth.
  • Contributions made towards the NPS are eligible for an additional tax deduction up to 50,000. This is over and above the ₹1,50,000 limit of deduction available under sec 80CCD (1) or tax deductions available to individuals who make contributions under  NPS.
  • Government has increased the income tax exemption limit on withdrawal from NPS to 60%, from 40%, on exiting the scheme, effectively making withdrawal from the pension scheme 100% tax free.
  • The recordkeeping, administration and customer service functions for all subscribers of the NPS are being handled by the National Securities Depository Limited (NSDL), which is acting as the Central Record-keeper for the NPS.
  • The subscriber will be allotted a unique Permanent Retirement Account Number (PRAN) which is portable and can be used from any location in India.
  • PRAN will provide access to two personal accounts:
  • Tier I Account: This is a non-withdrawable account meant for savings for retirement.
  • Tier II Account: This is simply a voluntary savings facility. The subscriber is free to withdraw savings from this account whenever subscriber wishes. No tax benefit is available on this account.
  • NPS returns are market linked. It offers 3 funds to subscribers: Equities, Corporate Bonds, Government Securities.
  • Subscriber can exit from NPS after 10 years of account opening or attaining 65 years of age whichever is early.
  • EEE tax status (tax exempt at entry, investment, and maturity) for the NPS (earlier it was EET) has been given.
  • Apart from partially withdrawing money for exigencies like health, marriage, house and education, subscriber can also withdraw 25 percent of the contributions after three years of joining for skill development activity like start ups, new ventures.

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