The National Pension Scheme or NPS is India’s government-sponsored retirement savings scheme. It is regulated by PFRDA or Pension Fund Regulatory and Development Authority. It was introduced in 2004 for the unorganized sectors and in 2009 for the organized. The NPS scheme is voluntary and contributory, offering many features and benefits, making it an attractive option for retirement savings.
Here is a guide on all aspects of the NPS, such as its types, tax benefits, features, and returns.
What are the types?
It has two kinds: Tier I and Tier II. The Tier I Account is a mandatory, locked-in account where the subscriber cannot withdraw the money until retirement. Meanwhile, the Tier II account is a voluntary Savings Account where the subscriber can withdraw the money as per their needs. Both these accounts offer different features and benefits.
What are its features?
The NPS offers numerous features which make it an attractive option for retirement savings:
Voluntary contribution:
It is a scheme wherein any Indian citizen between 18 and 60 years can open an account. There is no upper limit on the number of contributions made in a year.
Flexible investment options:
The NPS offers the subscriber a choice of investing in three asset classes: Equity, Debt, and Government Securities. The subscriber can choose the asset class or mix of assets as per their risk appetite and investment goals.
Tax benefits:
Contributions are eligible for NPS tax benefit under Section 80C of the Income Tax Act, and withdrawals at retirement are tax-free up to 60% of the corpus.
Portable account:
The NPS account is portable across jobs and locations. This means that the subscriber can continue maintaining their account even if they change jobs or move to another city.
What are the tax benefits?
The NPS is tax saving which makes it an attractive investment option. Following are the significant benefits:
- The NPS provides an additional deduction of up to Rs. 50,000 under Section 80CCD(I).
- An employer’s contribution to the NPS is exempt from tax under Section 80CCD(ii).
Returns on NPS
NPS offers three schemes:
Equity Scheme:
It invests a maximum of 50% in stocks.
Government Bond Scheme:
They are the safest and invest a maximum of 50% in Government Bonds.
Corporate Bond Scheme:
They are bonds issued by companies and invest a maximum of 30% in Corporate Bonds.
Returns are not guaranteed as it is a market-linked investment. For example, in 2017-2018, the return on equity was 17.17%. Investors can choose the scheme in which they want to invest their money. They can also change the scheme yearly. Investors can withdraw a maximum of 60% of their corpus at retirement. The remaining 40% must be invested in an annuity plan.
NPS Pension scheme is a good investment for those looking for long-term growth. It is a flexible and transparent investment option with good returns. So, if you seek to invest in NPS, remember these. They help you make an informed decision and choose the best investment option for yourself.
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