NPS – Real Value Financial

What is National Pension System (NPS)

National Pension System (NPS) is a voluntary, Government-sponsored defined contribution retirement savings scheme designed to enable subscribers to make optimum decisions regarding their future through systematic savings during their working life.

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National Pension System

NPS seeks to inculcate the habit of saving for retirement amongst the citizens.

NPS accounts are of two types: Tier I NPS accounts and Tier II NPS accounts. The Tier I NPS account is non-withdrawable till the account holder is of 60 years of age or he/she has retired. On the other hand, a Tier II NPS account functions as a voluntary savings account.

The rate of interest in NPS is market-linked. The past trends have been in the range of 9% to 12% per annum. The current return on the Public Provident Fund is 7.10% per annum. The NPS is an investment cum pension scheme where a part of the money is invested in the stock market, thus generating more returns.

Tax Benefits under NPS :

1. Tax benefits to employees on self-contribution:

Employees contributing to NPS are eligible for the following tax benefits on their own contribution:

2. Tax benefits to employees on Employer’s contribution :

Eligible for tax deduction up to 10% of salary (Basic + DA) (14% if Central Government makes such contribution) contributed by the employer under Section 80 CCD(2) over the limit of Rs. 1.50 lakh provided under section 80 CCE.

3. Tax benefits to self-employed :

Individuals who are self-employed and contributing to NPS are eligible for the following tax benefits on their own contribution:

4. Tax benefits on partial withdrawal from NPS account :

Eligible for tax exemption on the amount withdrawn up to 25% of the self-contribution, on such terms and conditions as may be specified by PFRDA under section 10(12B).

5. Tax benefit on purchase of Annuity :

Eligible for tax exemption on the purchase of annuity upon attaining the age of 60 or superannuation under section 80CCD(5). However, the subsequent income received from the annuity is subject to tax under section 80CCD(3).

6. Tax benefit on lump sum withdrawal :

Eligible for tax exemption on lumpsum withdrawal of 60% of accumulated pension wealth upon attaining the age of 60 or superannuation under section 10(12A) You can defer your Withdrawal and stay invested in NPS up to 75 years of age. Multiple deferment options are available. You have the option to withdraw a deferred lump sum amount in a phased manner over a period of 15 years or withdraw anytime the entire amount. The investments you make in NPS are locked in until the age of 60.

7. Tax benefit on lump sum withdrawal :

8. Tax Benefits to Corporates/ Employers :

Eligible for a tax deduction on the amount contributed as employer’s contribution towards the NPS account of employees, up to 10% of the salary (Basic + DA) of employer’s contribution as ‘Business Expense’ from the Profit & Loss Account under section 36(1)(iv)(a).

You can join NPS if you are a citizen of India (both resident and Non-resident) in the age group of 18-70 years (as of the date of submission of the NPS application).