National Pension Scheme (NPS): Benefits, Tax Benefits, Types, Contributions

National Pension Scheme is an investment cum pension plan launched by the Government of India . The scheme is regulated and administered by the Pension Fund Regulatory and Development Authority. It is specifically launched by the Government of India to provide financial security to Indian senior citizens. National Pension System (NPS) offers impressive long-term savings options so that one can plan their retirement time efficiently by investing in this safe market-based planning. Could.

National Pension Scheme (NPS): Benefits, Tax Benefits, Types, Contributions




National Pension Scheme – All Citizen Model

National Pension Scheme

The National Pension Scheme is a voluntary retirement saving scheme that allows customers to make defined contributions towards planned savings thereby securing a future in the form of a pension. It is an effort towards a permanent solution to the problem of providing adequate retirement income to every citizen of India.​At the time of normal exit from NPS (National Pension System), the subscriber can use the accumulated pension amount under the scheme through a life insurance company empaneled with PFRDA (Pension Fund Regulatory and Development Authority). They can buy a life annuity from a pension fund, as well as withdraw a part of the accumulated pension amount as a lump sum, if they so choose. PFRDA is the nodal agency for the implementation and monitoring of NPS (National Pension System).




Who can open NPS account under All Citizen Model?

A citizen of India, whether resident or non-resident, subject to the following conditions. The age of the applicant should be between 18 to 70 years on the date of application submission and he/she should follow the prescribed KYC norms.



Benefits of NPS Account

Below we have listed some of the important benefits related to the National Pension Scheme. All these features makes it a viable option to secure your future.

  • NPS (National Pension Scheme) is considered to be the lowest cost pension scheme in the world. Administrative charges and fund management charges are also the lowest.
  • All applicants have to open an account with any one of the POPs run through all Head Post Offices across India and obtain a Permanent Retirement Account Number.
  • The applicant can choose his own investment option and pension fund or can choose the auto option to get better returns
  • The applicant can operate an account from anywhere in the country and pay contributions through any POP-SP, even if he changes his city, job etc. And also contribute through eNPS. If the customer gets employment then the account can be transferred to any other sector like government sector, corporate model.



Tax benefits from the National Pension System

Individuals who are employed and contributing to the NPS (National Pension System) will enjoy tax benefits on their own contributions as well as their employer’s contributions as follows

  • Eligible for tax deduction up to 10% of salary (Basic + DA) under Section 80 CCD(1) within the overall limit of Rs 1.50 lakh under Section 80CCE.
  • ​Employee is eligible for tax deduction under section 80 CCD(2) up to 10% of the salary (Basic + DA) contributed by the employer, which is more than the limit of Rs 1.50 lakh provided under section 80 CCE .
  • Self Employed are  eligible for tax deduction up to 10% of the gross income under section 80 CCD(1) with an overall limit of Rs 1.50 lakh under section 80 CCE.



Types of NPS Accounts

Ther are two types of NPS accounts. We have discussed both of them briefly so that you can choose whatever suits you the best.

Tier I Account  : This is a retirement account and the applicant can claim tax benefits against the contributions made subject to the applicable income tax rules.

Tier-II Account : This is a voluntary savings facility. The applicant is free to withdraw his savings from this account whenever he wants. This is not a retirement account and the applicant cannot claim any tax benefits against contributions to this account.




Contribution to the National Pension System

The subscriber can contribute the amount through cash, local cheque, demand draft or Electronic Clearing System (ECS) at his chosen POP-SP. However, for cash transactions above Rs 50000/- the customer will have to submit a copy of PAN card as per Anti-Money Laundering (AML) rules. Also, no outstation check will be accepted.




Comparison of NPS with ELSS

The good thing about the National Pension Scheme (NPS) is that it has equity allocation. However, the equity allocation is still not as much as that of tax saving mutual funds. Equity linked savings plans invest primarily in equities and can generate higher returns than NPS. The lock-in period of tax saving mutual funds is also less than that of NPS.

From the details given above, you must have known what the National Pension Scheme is and what its benefits are, if you are also planning to invest in NPS, then start investing as soon as possible. So that you can get the right returns at the right time.


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