National Pension Scheme (“NPS”)
By Jeevan Kumar
Introduction:
· NPS can be opened by anybody from public, private and unorganised sectors except those who were or are in employment with armed forces.
· In NPS scheme, the subscribers can make minimum contribution of Rs.6,000/- in a financial year which can be paid as lumpsum or as monthly instalment of minimum Rs.500/-.
· The contribution of Subscribers is invested into market linked instruments and returns on NPS depends on the performance of these investments.
· Any Indian citizen from age group of 18 to 65 years can open NPS account regulated by Pension Fund Regulatory and Development Authority (“PFRDA”).
· NPS matures at the age of 60 years and can be extended up to 70 years.
· NPS allows to make partial withdrawal up to 25% of contribution after 3 years of opening account in specific situations like purchasing or construction of first house, child ‘s education or marriage, treatment of Illness, setup or acquire new business, skill development or reskilling activities.
Types of NPS:
· There are 2 types of NPS which are Tier I and Tier II.
· Differences between Tier I and Tier II is Explained as below:
Benefits of NPS:
a. Tax Benefits u/s 80CCD:
· 80 CCD (1): Where an assessee, being an individual employed by the Central Government on or after the 1st day of January, 2004 or, being an individual employed by any other employer, or any other assessee, being an individual has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified by the Central Government, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited as does not exceed, —
(a) in the case of an employee, 10% of his salary in the previous year; and
(b) in any other case (self-employed), 20 % of his gross total income in the previous year.
· Deduction under 80 CCD (1) is within the limits specified under 80CCE i.e., Rs.1,50,000/-.
· 80 CCD (1B): An assessee referred to in sub-section (1), shall be allowed a deduction in computation of his total income, whether or not any deductions is allowed under sub-section (1), of the whole of the amount paid or deposited in the previous year in his account under a pension scheme notified or as may be notified by the Central Government, which shall not exceed Rs.50000/- Provided that no deduction under this sub-section shall be allowed in respect of the amount on which a deduction has been claimed and allowed under sub-section (1).
· Deduction under 80CCD (1B) is over and above the limits specified in 80 CCE.
· 80 CCD (2): Where, in the case of an assessee referred to in sub-section (1), the Central Government or any other employer makes any contribution to his account referred to in that sub-section, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government or any other employer not exceeding,
(a) 14% of his salary in the previous year, where such contribution is made by the Central Government and
(b) 10% of his salary in the previous year, where such contribution is made by any other employer.
· Since 80 CCD (2) is not covered under section 80 CCE it is deemed assumption that benefit under this section is over and above the limits of 80 CCE.
a. Other benefits:
· Premature Withdrawal is allowed up to 3 times in the intervals of 5 years in the entire tenure.
· On the date of maturity 60 % of accumulated fund can be withdrawn for tax free and remaining 40 % should be keep aside to receive a regular annuity from PFRDA.
· In NPS scheme, the subscriber can contribute any time during the financial year and can change the amount of investment every year.
· Low cost and professionally managed by experienced pension funds.
· An NRI can open an NPS account. Contributions made by NRI are subject to regulatory requirements as prescribed by RBI and FEMA from time to time. However, OCI (Overseas Citizens of India) and PIO (Person of Indian Origin) card holders and HUFs are not eligible for opening of NPS account.
Below are links of few well written articles on whether to invest in NPS merely because of tax benefits:
Should you invest in NPS just to get additional tax benefit? (livemint.com)
Should you invest in the NPS? (etmoney.com)
Information in this blog is intended to provide only a general outline of the subjects covered It should not be regarded as comprehensive or sufficient for making decisions, nor should it be used in place of professional advice.
Nitin Jogad & Associates| Chartered Accountants accept no responsibility for loss arising from any action taken or not taken by anyone using this blog.
