How the National Pension Scheme Benefits the Citizens?
To benefit the citizens of India, the Indian Government has introduced the most beneficial NPS – National Pension Scheme. This scheme is mainly designed to provide retirement benefits to the citizens. However, regardless of the sectors, even if you are from an unorganized sector, this NPS scheme is still beneficial to everyone. Undeniably, this pension scheme is going to be the best investment and retirement plan to secure your life.
Here is more about the NPS scheme.
What is the NPS Scheme?
If you have a question about what is NPS, there here is a brief about:
NPS is an initiative retirement plan designed by the Government of India and regulated by PFRDA – Pension Fund Regulatory and Development Authority under the PFRDA Act 2013.
This is a voluntary contribution scheme and market-linked. The funds of NPS are managed by trained and professional fund managers.
How does NPS online work?
The individuals who are subscribed to this national pension scheme returns makes a contribution under a system, which will accumulate the fund until your retirement. As a result, the corpus will continue to grow via the market-linked returns.
The subscribers of the NPS account also have the option to exit from this plan before their retirement. They also have the option for supper annulation. At the same time, this pension scheme will also ensure that a part of the savings made will be provided to the subscriber towards the retirement benefits. Therefore, during retirement, regardless of the supper annulation or exit, you will receive 40% of the contribution towards your lifetime pension. The remaining fund will be paid in a lump sum to the subscriber.
The main objective of NPS contribution:
The essential purpose of creating a corpus for retirement is a crucial part of financial planning. This will not only encourage an individual to fulfill his expenditure requirement but lead a smooth life after his retirement without hassles.
The increasing count of senior citizens in India emphasizes the need for such benefiting schemes. During your working years, you get an opportunity to create systemized savings. This, in other terms, inculcates a financial discipline to save for your future.
NPS Benefits and Features
The NPS features two types of accounts, and they include:
- Tier-I account
- Tier-II account
These two accounts create an opportunity for individuals to make systematic savings or investments. By opening an NPS account, a unique Permanent Retirement Account Number – PRAN is issued to the individual. Thus the fund management is performed through PRAN.
Tier-I account is the pension account. The withdrawals made from this account are subject to some restrictions. For example, this account can be opened with a deposit of Rs. 500/-, whereas the Tier II account is a voluntary account, which provides liquidity of funds through your withdrawals and investments. In this account, Rs. 250/- is the minimum deposit amount that you need to pay to open it. However, the Tire-II account can be opened only if your Tier-I account is active and your name exists in it.
The intermediaries of the National Pension Scheme may include;
- Trustee banks
- NPS trust
- Central Record Keeping Agency
- Annuity Service providers and
- Point of Presence
NPS Tax Benefit
The NPS also provides tax benefits to the subscribers. Here are details under which you can gain the tax benefits from NPS:
- U/S 80CCD (1): Under this, the subscriber will make his own contribution towards the Tire I investments, and the tax is deductible within your total ceiling of Rs.1.5 lakhs.
- U/S 80CCD 1(B): Under this tax benefit, in addition to deducting under 80CCD (1), you will also get the benefit of the deduction for Rs.50,000/- towards your Tire- I contribution.
- U/S 80CCD (2): Under this tax benefit, the contribution made towards Tire-I becomes eligible for deducting up to 14% for the central government contribution and up to 10% for any other contributions. This deduction is also applicable for u/s 80C.
Besides these above-said tax benefits, NPS also provides other tax benefits on your Tire-I investment, and they are:
- An exemption from tax for a withdrawal made up to 28% of Tire-I investment
- An annuity purchase made from NPS corpus is tax exempted. However, any income that is generated from such annuity becomes taxable in the following years
- A tax exemption is given for a lump sum withdrawal of up to 40% from your NPS corpus, mainly when a subscriber is 60 and above the age
Who can benefit the most from NPS?
Except for the armed forces, all government employees from both central and state benefit from this scheme. The beneficiaries are categorized under two models, and they include;
- Corporate Model: This includes corporate employees enrolled by their companies and between the age of 18 and 60 years.
- All citizens model: This includes all Indian citizens who meet the eligibility criteria, such as with the age limit between 18 and 60 years and fulfilling KYC requirements as defined on the subscriber registration form along with essential documents.
How to Apply NPS online?
If you are looking for a guide to apply NPS online, then here it is for you;
- Visit the eNPS portal, which is the official website, to apply for your National Pension Scheme
- Choose the subscriber type on “Individual Subscriber” and “Corporate Subscriber” options
- Enter your residential status – Citizen of India or NRI
- Choose Tire I account or both
- Provide your PAN details
- Upload the scanned copies of the PAN card with your canceled cheque
- Upload your photograph with signature
- Now, after you are routed to the payment gateway, make your payments choose relevant options
- After your payment completion, you will be generated with a Permanent Retirement Account Number
- If you are an NRI, then you may need to complete an additional few steps to complete the process
With all the given details and information, you might not find the NPS absolute security for the retirement period of your life.