NPS Overview

What is NPS?

The National Pension System (NPS) is a voluntary, retirement savings scheme launched by the Government of India and regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It allows individuals to contribute regularly during their working life and build a retirement corpus, along with a lifelong pension (annuity) post-retirement.

Benefits of NPS

  • High Returns: NPS offers higher returns as the market linked.
  • Low Cost: The fund management fee for LIC Pension Fund is only 0.03% of the AUM which is amongst the lowest in the world.
  • Tax Benefits: NPS offers tax exemptions under both the old and new tax regimes.
  • Pension: NPS offers regular income post-retirement in the form of pension through annuity.
  • Custom Investment: Funds are invested in a mix of equity, corporate bonds, government securities and AIF depending on your choice.

Who can join?

  • Any Resident Indian, NRI or OCI.
  • Age must not be over 70 years
  • Suitable for salaried, self-employed, professionals and gig workers.
  • Parents can also invest in NPS for their children to benefit later in their lives.

Types of NPS Account

  • Tier 1 is a primary NPS account — it helps you build a fund to manage your finances once you stop working. Funds in this account can only be partially withdrawn under specific conditions.
  • Tier 2 is an optional investment account. You can invest and withdraw your funds any time.

Tax Benefits Under NPS (Tier 1 Account)

Old Tax Regime

  • Under section 80 C with overall ceiling of ₹1.50 lakhs u/s 80 CCE of Income Tax Act, 1961.
  • Under section 80 CCD (1B) - An additional tax deduction on investment upto ₹50,000 in NPS Tier 1. This is over and above the sec 80 C limit of ₹1.50 lakhs.
  • Under section 80 CCD (2) - Tax deduction on employer’s contribution upto 10% of salary (Basic +DA). it is subject to a ceiling of ₹7.50 lakhs.

New Tax Regime

  • Under section 80 CCD (2) - Tax deduction on employer’s contribution upto 14% of salary (Basic +DA). it is subject to a ceiling of ₹7.50 lakhs.

How NPS works

How NPS works

Investment Options

Under NPS, you can allocate funds across asset classes Equity (upto 75%), Corporate Bonds (upto 100%), Govt. Securities (Upto 100%) and Alternate Assets (Upto 5%) yourself under ACTIVE CHOICE .

OR

Based on your risk appetite you can also let the funds get allocated automatically under the AUTO Choice options: Aggressive, Moderate, Conservative or Balanced Life cycles. As per the name, the investment risk varies in each lifecycle.

Withdrawal or Exit from NPS

At the age of 60 or Retirement

  • You can exit from NPS at the age of 60 years or at retirement. At the time of exit, you need to purchase annuity with at least 40% of the total retirement corpus. The remaining 60% funds can be withdrawn as a lumpsum.
  • If the total corpus is less than ₹5 lakh, you can opt for 100% lumpsum withdrawal.
  • The amount utilized for annuity purchase is exempt u/s 80CCD(5). The lumpsum payment upto 60% of total corpus is fully exempt u/s 10(12A).

Before the age of 60 or Retirement

  • You can exit from NPS before the age of 60 years or at retirement, subject to completion of 5 years of association (for Non-Government Subscribers). You need to purchase annuity with at least 80% of the total retirement corpus. The remaining 20% funds can be withdrawn as a lumpsum.
  • If the total corpus is less than ₹2.5 lakh, you can opt for 100% lumpsum withdrawal.
  • The amount utilized for annuity purchase is exempt u/s 80CCD(5). The lumpsum payment upto 60% of total corpus is fully exempt u/s 10(12A).

Partial Withdrawal from Tier 1

  • Subscriber should be in NPS for at least 3 years
  • Withdrawal amount should not exceed 25% of the contribution made by the subscriber.
  • Withdrawal can happen only against specific reasons:
    • Children’s education
    • Treatment of specified illness
    • Buying first house
    • Marriage
    • Starting any new venture
  • This withdrawal is tax-free u/s 10(12B)

Withdrawal requests are made online.

Investors have the option to Defer or Continue

After attaining retirement age or 60 years, subscriber can opt for:

  • Continuing NPS account with contributions or
  • Continue NPS account without contributions or
  • Take lumpsum in installments and defer annuity till 75 years of age.