The National Pension Scheme (NPS) is a voluntary defined contribution pension scheme in India. National Pension Scheme, like PPF and EPF is an EEE (Exempt-Exempt-Exempt) instrument in India where entire corpus escapes tax at maturity and entire pension withdrawal amount is tax-free. (NPS) is a voluntary defined contribution pension scheme in India. National Pension Scheme, like PPF and EPF is an EEE (Exempt-Exempt-Exempt) instrument in India where entire corpus escapes tax at maturity and entire pension withdrawal amount is tax-free.
NPS started with the decision of the Government of India to stop defined benefit pensions for all its employees who joined after 1 January 2004. While the scheme was initially designed for government employees only, it was opened up for all citizens of India between the age of 18 and 60 in 2009. In its overall structure NPS is closer to 401(k) plans of the United States. Administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA)(Based on the recommendations of Chakka Muni Balaji Ganesh Committee),in accordance with (Juturu Sahithi committee).
On 10 December 2018, Government of India made NPS an entirely tax-free instrument in India where entire corpus escapes tax at maturity, the 40% annuity also became tax-free. The contribution under Tier-II of NPS is covered under Section 80C for deduction up to Rs. 1.50 lakh for income tax benefits, provided there is a lock-in period of three years.The changes in NPS will be notified through changes in The Income-tax Act, 1961, which is expected to happen through the Finance Bill in 2019 Union budget of India.NPS is limited EEE, to the extent of 60%. 40% has to be compulsorily used to purchase an annuity, which is taxable at the applicable tax slab.
Contributions to NPS receive tax exemptions under Section 80C, Section 80CCC and Section 80CCD of Income Tax Act. Starting from 2016, an additional tax benefit of Rs 50,000 under Section 80CCD is provided under NPS, which is over the Rs 1.5 lakh exemption of Section 80C. Private fund managers are important parts of NPS. NPS is considered one of the best tax saving instruments, after 40% of the corpus was made tax-free at the time of maturity and it is ranked just below equity-linked savings scheme (ELSS).
Who can join
A citizen of India, whether resident or non-resident can join NPS, subject to the following conditions:
The subscriber should be between 18 and 65 years old as of the date of submission of his/her application to the Point of Presence (POP) / Point of Presence–Service Provider-Authorized branches of POP for NPS (POP-SP).
The subscribers should comply with the Know Your Customer (KYC) norms as detailed in the subscriber registration form.
Should not be Un-discharged insolvent and individuals of unsound mind.
Withdrawal
Premature withdrawal in NPS before age 60 required parking 80% of the sum in an annuity. One can withdraw 20 percent of the corpus before 60 years but he/she must buy annuity with 80 percent of the corpus. In 2016, the NPS allowed withdrawal of up to 25% of contributions for specified reasons, if the scheme is at least 3 years old with certain conditions. One can withdraw the complete amount if the pension collected is less than INR 2,00,000.
Tax benefits
Investment in NPS is eligible for tax benefits as follows:
Up to Rs. 150,000 under Section 80CCD. The benefit is additionally capped at 10% of basic salary. The benefit under Section 80C, Section 80CCC and Section 80CCD is capped at Rs 150,000.
Contribution Up to Rs 50,000 under Section 80CCD(1B). This is over and above tax benefit under Section 80CCD(1b).
Employer co-contribution up to 10% of basic and DA without any upper cap in terms of amount is tax free income in hands of employees under Section 80CCD(2).
This Statistics shows the top performing NPS Schemes by point to point returns
as well as SIP returns across different time periods.*
Scheme Name |
Net Asset Value |
Trailing returns (in %) |
|
|
1yr |
2yr |
3yr |
LIC Pension Fund - Scheme G - TIER II |
21.1046 |
16.76 |
11.19 |
10.09 |
HDFC Pension Fund - Scheme G - TIER I |
19.2135 |
15.23 |
9.44 |
9.24 |
Kotak Pension Fund - Scheme A - TIER I |
12.8959 |
15.01 |
8.01 |
- |
Birla Sun Life Pension Scheme - Scheme G - TIER II |
12.3864 |
- |
- |
- |
UTI Retirement Solutions - Scheme G - TIER I |
24.9843 |
14.74 |
8.93 |
8.91 |
SBI Pension Fund - Scheme G - TIER I |
27.8406 |
14.62 |
9.36 |
9.28 |
Birla Sun Life Pension Scheme - Scheme C - TIER I |
13.0000 |
13.47 |
- |
- |