National Pension System
Also known as NPS, is a voluntary defined contribution pension system. National Pension System 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 from May 1st 2009. NPS is an attempt by the government to create a pensioned society in India.
National Pension System (NPS), Regulated by PFRDA, is an important milestone in the development of a sustainable and efficient voluntary defined contribution pension system in India. It has the following broad objectives:
1. Provide old age income
2. Reasonable market-based returns over the long term
3. Extending old age security coverage to all citizens
Salient features & benefits
• Portable – Retirement account (with unique PRAN) may be retained across
employers, location etc.
• Simple – Standard product designed by PFRDA
• Flexible – Choice of fund managers, investment options, annuity plans,
annuity service providers and Point of Presence (POPs)
• Economical – Lowest cost investment product currently available in the
market
• Unique tax benefits
Benefits of NPS
1. Market Linked: The contribution made by the subscribers is invested in equity, corporate bonds, government securities and real estate.
2. Multiple Investment Choice: The subscriber is eligible to change the fund manager and the investment options once every year after 12 months hence giving them the flexibility to choose.
3. Tax Benefits: Subscriber saves on taxes and creates corpus for future income post-retirement.
4. Portable: Once the subscriber joins NPS, he/she can port the same account across jobs, cities etc.
5. Transparent: NPS is regulated by PFRDA, with transparent investment norms, regular monitoring and performance review of fund managers by NPS Trust.
Tax Benefits
1. Employer: Employers’ contribution towards employee’s pension can be claimed as ‘Business Expense’ under Section 36(1) – Up to 10% of the salary (Basic+DA) of the employee.
2. Employee: Deduction can be claimed for the contribution made by an employer under Section 80CCD (2) – Up to 10% of the salary (Basic+DA) of the employee.
3. Individual Contribution: Deduction of Rs.50000 can be claimed under section 80CCD (1B). This is over & above Rs.1.5 lac deduction under section 80CCE of the income tax act.