Objective of national pension scheme is extending security of old age. It is introduced by government. It will be cover to all citizens who opted for this scheme.by investing in NPS you will receive benefits in old age.
About National Pension Scheme:
Suppose, if you join NPS scheme you will get permanent retirement account number (PRAN). It is applicable for all citizens of India. You can apply NPS by online or you can join by employer. If your employer offering NPS you will get an equal contribution from his side.
According to this scheme, Provident fund managers are invested these funds in different sectors like government bonds, corporate debentures and shares. Depending on how much you invest it will gradually increase over years, after that you income earned it.
In NPS you can open two accounts, tier –1 and tier-2. You are mandatorily required to open a tier-i account, after that you will be eligible for tier-2 account. In tier-1 account premature withdraw is not permitted. If you choose tier-2 structure your employer did not get any contribution to that account
Tier-1: it is a pension until u will not be withdrawn until you are 60 years. If you want to allow for premature withdraws for repayable advances, after completion of 15 years. Also, if you want to withdraw for 50 % at least 25 years of services
Tier-2: if you invest in NPS tier-ii account, withdraws are
permitted like a saving account.
Rules of withdraw
You can now withdraw up to 25 percent of contributions from third year of joining NPS. You can withdraw for a maximum of 3 times for entire tenure of your NPS subscription.
There are different types of withdraws in national pension scheme.
NPS Withdrawal types and plans:
Normal superannuation: you can also purchase annuity plans from government agencies, once you reached retirement age you get at least 40% pension wealth
Remaining 60% amount can withdraw using two options: 1.lump sum 2.installment
If you’re total amount is less than 2 lakhs amount in your account at time of your retirement or 60 years you can withdraw total amount.
Death: pension amount (100%) will be paid to your nominee.
Exit before age of superannuation: you will have utilize 80% of amount purchase annuity plans on monthly pension and remaining 20% amount can form lump sum.
Different investment options under NPS
Two types of investment options under this NPS
National Pension Scheme Active choice:
Under this option, you will choose your own assets across equity, bonds and government securities. Only 50% amount is invested in equity and 100% amount is invested in bonds and government securities.
Auto choice: as per your age you can invest in equity, bonds and government securities. As per your age mentioned in below table.
|<=35 years||50 %||30 %||20 %|
|36 years||48 %||29%||23%|
|37 years||46 %||28%||26%|
|38 years||44 %||27%||29%|
|39 years||42 %||26%||32%|
|40 years||40 %||25%||35%|
|41 years||38 %||24%||38%|
|42 years||36 %||23%||41%|
|43 years||34 %||22%||44%|
|44 years||32 %||21%||47%|
|45 years||30 %||20%||50%|
|46 years||28 %||19%||53%|
|47 years||26 %||18%||56%|
|48 years||24 %||17%||59%|
|49 years||22 %||16%||62%|
|50 years||20 %||15%||65%|
|51 years||18 %||14%||68%|
|52 years||16 %||13%||71%|
|53 years||14 %||12%||74%|
|54 years||12 %||11%||77%|
|>= 55 years||10%||10%||80%|
Suppose you joined scheme at age of 41, your allocation towards equity, corporate bonds and government securities will be 38%, 24% and 38% respectively.
Eligibility to invest in NPS:
All state and central government employees, as well as citizens of India that fall between age group of 18 to 60 years, are eligible for investing in NPS.
Benefits of investing using NPS
Benefits of investing using national pension scheme.
- You can operate your NPS account anywhere in India.
- You can open an NPS account within age of 18-60 years.
- You can invest different investments funds.
- You can plan your retirement and be sure that you will receive assured amount of returns at retirement.
National Pension Scheme tax benefits
By using national pension scheme, you will get an additional tax benefit of rs 50,000 under section 80ccd (1b). This additional tax benefit will be over and above ceiling limit of rs 1,50,000 that is prescribed under section 80cce.
Section 80ccd provides deductions on taxes to pension scheme notified by central government. National pension scheme (NPS) and Atal pension yojana (apy) are two pension schemes that fall under this section.
Section 80ccd is further divided into two sub-sections namely section 80ccd (1) and section 80ccd (2).
Let’s look an example to give clarity on 80ccd.
Mr. Naveen teja is a government employee under pension scheme and government his 10% of pension scheme.
Basic salary – rs. 4,00,000
dearness allowance (included for retirement benefits) – rs. 2,00,000
allowances taxable – rs. 30,000
perquisites taxable – rs. 30,000
investment under section 80c lic/mutual funds – rs. 1,00,000
Solution: lets us first discuss about income of Naveen
|Central government contribute To NPS||60,000||7,20,000|
we now have to deduct employee’s contribution under section 80ccd(1) and employer’s contribution under section 80ccd(2) along with deduction under section 80c.
Qualifying amount of deduction under both section 80ccd (1) and 80ccd (2) is calculated as 10% of basic salary as well as of d.a. (i.e. Rs. 40,000 of basic salary and rs. 20,000 of dearness allowance, adding to a total of rs. 60,000). But total deduction under section 80c, 80ccc and 80ccd (1) cannot exceed rs. 1,50,000 because of limit imposed by section 80cce.
As mr. Naveen teja had invested rs. 1,00,000 qualifying under section 80c he can claim another rs. 50,000 under section 80ccd(1). In this case, he has used only rs 50,000 out of his total contribution of rs. 60,000. Mr.Naveen can claim balance of rs. 10,000 as deduction under section 80ccd (1b).
So total deduction will be rs. 2,80,000
(80c – rs. 1,00,000 + 80ccd(1) – rs. 50,000 + 80ccd(2) – rs. 60,000 + 80ccd(1b) – rs. 10,000).
Therefore, on claiming total deductions of rs 2,20,000 net taxable income of mr Naveen Teja will be rs. 7,20,000.