Background:
GoI set up Pension Fund and Regulatory and Development Authority (PFRDA) on 10th October, 2003, to develop and regulate pension sector in India. National Pension System (NPS) is a pension-cum-investment scheme to provide old age security or retirement income to all the citizens of India. Initially, NPS was introduced w.e.f. 1st January 2004 to new government employees (except defense personnel). W.e.f. 1st May, 2009, NPS subscription has been made available to all citizens of India including unorganized sector workers on voluntary basis. Under Swavalamban Scheme, GoI, employees from unorganized sector were encouraged to voluntarily save for retirement corpus, co-contributed a sum of Rs 1,000/- to each eligible NPS subscriber who contributed between Rs 1,000/- and Rs 12,000/- annually, until 31st March, 2017.
Salient Features:
* NPS subscribers would be allotted a Permanent Retirement Account Number (PRAN) for the lifetime.
* NPS subscriber can open Tier I and Tier II accounts. The contributions in Tier I account are non-withdrawable whereas Tier II is voluntary contribution account where funds could be withdrawn at will.
* NPS is a low cost product carrying tax benefits, market linked returns, provides easy portability, managed by professional fund managers, and regulated by PFRDA.
Eligible Subscribers:
* Central Government Employees - NPS is applicable to all new employees (except defense personnel joining on or after 1st January 2004. Existing employees can also join under all citizens category through Point of Presence - Service Provider (POP-SP).
* State Government Employees - All employees of State Government and State Autonomous Bodies joining services post issuance of NPS notification by respective State Governments. Other employees can take the route of all citizen category.
* Corporate - It can decide to join NPS either at corporate level or subscriber level. The corporate of individual could choose from any one of the empaneled Pension Fund Managers (PFMs) and also the percentage of fund allocation to different asset classes.
* Individuals - All citizens of India between the age of 18 years and 65 years could also voluntarily join NPS, including those falling under unorganized sector.
* NRIs - NRIs could subscribe to NPS subject to regulatory requirements stipulated under FEMA or by RBI. However, Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCI) and Hindu Undivided Family (HUF) are not eligible for opening NPS account.
Tax Benefits:
* Exclusive tax deduction of Rs 50,000/- p.a. is available to NPS subscribers under section 80 CCD (1B), which is over and above the deduction of Rs 1.5 lakh available under section 80C of IT Act, 1961.
* Subscribers under Corporate category are eligible for additional tax benefit, with monetary limit of Rs 7.5 lakh, towards Employer's NPS contribution for the employee up to 10% of basic salary.
* Corporates can claim exemption of NPS contribution amount (up to 10% of basic salary) as business expense.
Maturity or Pre-mature Withdrawal:
* NPS Tier I account matures after attaining the age of 60 years, though withdrawals could be extended till the age of attaining 70 years.
* Under extant NPS rules, 60% of the accumulated corpus withdrawal is tax free in the hands of subscriber.
* Rest 40% of the accumulated corpus has to be necessarily invested into annuity scheme of Annuity providers.
* The investment in annuity would provide monthly pension to the subscriber and spouse on the death of annuitant, under one of the 7 annuity options available.
* The monthly pension in the hands of subscriber would be taxable at the marginal tax rate.
* Partial withdrawal up to 25% of own contributions can be made for specified purposes only 3 times during lifetime of the NPS account, post completion of minimum 10 years.
* In case of premature exit of the subscriber from NPS, the lumpsum withdrawal (20%) is taxable at marginal slab rate whereas rest 80% has to be necessarily invested into annuity.
* If the accumulated corpus in NPS account is equal to or less than Rs 2 lakh, then entire fund could be withdrawn.
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