National Pension Scheme (NPS)
Features for National Pension Scheme (NPS)
NPS is regulated by PFRDA, with transparent investment norms & regular monitoring and performance review of fund managers by NPS Trust.
NPS is market driven and does not guarantee any fixed returns.
NPS account is portable across geographies and employment. You can continue your account even if you change job location or change job from private to public sector/government job and vice versa.
Flexibility to choose Point Of Presence, Pension Fund Managers, investment option, Annuity Service Provider and Annuity schemes.
NPS is one of the worlds cheapest investment pension scheme with just 0.01% fund management charges.
One can check fund, NAV and contribution status through NSDL(Central record agency) website.
Eligibility for National Pension Scheme (NPS)
1. Tier-1 account:
Opening this account is mandatory for all subscribers of NPS.
Minimum contribution=Rs 500
Minimum annual contribution = Rs 1000
Minimum transaction per year= 1 per year
2. Tier -2 account:
This is a voluntary savings account.
Minimum contribution=Rs 250
Minimum annual contribution = Rs 2000
Minimum transaction per year= 1 per year
Savings can be transferred from Tier 2 to Tier 1 account but not from Tier 1 to Tier 2
Investment options under National Pension Scheme (NPS)
There are three asset classes/funds available for investment
Asset Class E – investments in predominantly equity market instruments
Asset Class C – investments in predominantly fixed income bearing instruments
Asset class G – investments in purely fixed income instruments.
You can choose one the below options for investment under NPS
1.Active Choice: In this option you can choose to invest your entire contribution in C or G asset classes and upto maximum of 50% in equity asset class E.
2.Auto Choice(Life Cycle fund): In this option till you reaches age of 36 ,50% of your contribution will be invested in“E” Class, 30% in “C” Class and 20% in “G” Class. From age 36 onwards, the weightage in “E” and “C” asset class will decrease annually by 2% and 1% respectively and the weight in “G” class will increase annually by 3% till it reaches 10% in “E”, 10% in “C” and 80% in “G” class at age 55.
If you do not make a choice then by default your contributions will be channelled in auto choice option. One has option to realign his investment in asset class E, C and G based on age and future income. The subscriber has option to change the investment option Active choice or Auto choice
Fund managers under National Pension Scheme (NPS)
NPS allows you to choose from any one of the following six entities to manage your pension fund:-
· ICICI Prudential Pension Funds Management Company Limited
· IDFC Pension Fund Management Company Limited
· Kotak Mahindra Pension Fund Limited
· Reliance Capital Pension Fund Limited
· SBI Pension Funds Private Limited
· UTI Retirement Solutions
SBI Pension Funds Private Limited is the default fund manager but one has option to change fund manager.
Tax exemption on NPS investment
Tax exemption is not available on Tier-2 account.Exemption for Tier-1 account is as listed below
Employee’s contribution -
Eligible for tax deduction upto 10% of Salary (Basic + DA) under sec 80 CCD (1) within the overall ceiling of Rs. 1.5 Lac
Under Sec. 80 CCAdditional investment of Rs.50,000 under section 80CCD (1B).
Total benefit of 2 lacs can be claimed for NPS under Section 80CCD(1) + Section 80CCD(1B)
Employer’s contribution –
Eligible for tax deduction upto 10% of Salary (Basic + DA) contributed by employer under sec 80 CCD (2) which shall be excluded from the limit of Rs. 1.5 lac provided under Sec. 80 CCE.
For employer to contribute one has to open NPS corporate account.
National Pension Scheme (NPS) on maturity
On attaining 60 years of age you will be required to invest minimum 40% of your NPS pension wealth in
life annuity. You have option to invest amount greater than 40% in annuity. Balance remaining after investment in annuity can be withdrawn as lump sum or in phased manner between age 60 and 70.
If case value of NPS pension wealth is less than Rs 2 lakh, the entire sum can be withdrawn.
Purchase of annuity on attaining 60 years of age can be deferred maximum upto 3 years.
If you do not withdraw balance remaining on attaining age of 70 years, your account will be closed and and remaining balance will be transferred to you.
Exiting National Pension Scheme (NPS) before attaining the age of 60 years
One can exit NPS before attaining 60 years of age but 80% of NPS pension wealth should be used to purchase a life annuity. Rest of the 20% of the pension wealth can be withdrawn as lump sum.
Account can be closed before 60 years of age under below circumstances
· Death of NPS holder
· Change in citizenship status of account holder.
· NPS account value reduces to zero.
Partial withdrawal in National Pension Scheme (NPS)
After completion of 10 years from date of joining NPS, a partial withdrawal upto 25% of contributions made by subscriber is allowed. Partial withdrawal is not allowed on contributions made by the employer.
Partial withdrawl is allowed for below listed purpose
Higher education of his/her child including legally adopted child.
Marriage of his/her child including legally adopted child.
Construction/purchase of house or residential flat in his/her name or in joint ownership with legally wedded spouse.If he/her already own a house or residential flat either individually or in joint ownership with legally wedded spouse,other than ancestral property ,then premature withdrawl will not be allowed.
To cover cost of treatment of specified illnesses for subscriber, his/her legally wedded spouse, children, including a legally adopted child or dependent parents.
Diseases include Cancer, Kidney Failure (End Stage Renal Failure), Primary Pulmonary Arterial Hypertension, Multiple Sclerosis, Major Organ Transplant, Coronary Artery Bypass Graft, Aorta Graft Surgery, Heart Valve Surgery, Stroke, Myocardial Infarction, Coma, Total blindness, Paralysis, Accident of serious/ life threatening nature and any other critical illness of a life threatening nature as stipulated in the circulars, guidelines or notifications issued by the Authority from time to time.
Maximum three withdrawals are allowed in entire NPS subscription period and there should minimum five years difference between two withdrawals. Limit of five years’ difference between withdrawals is not applicable in case of treatment of specified illness or in case of exit from NPS due to death of the subscriber.
Tier-2 is a voluntary account so there is no restriction on withdrawals.
Tax treatment on withdrawal from National Pension Scheme (NPS)
Currently NPS has EET status. Withdrawal amount will be added to your income and taxed as per appropriate tax slabs. Even the pension you get on investment in annuity will be added to your income and taxed as per appropriate tax slabs.
Budget 2016 has proposed that 40% of withdrawl amount will be not be taxable.Service tax on single premium annuity products is also proposed to be reduced from 3.5% to 1.4%