NPS is a voluntary and long-term investment plan for a safe retirement with withdrawal made easier
The National Pension Scheme is a government-sponsored social security programme. Except for individuals in the military forces, this pension scheme is available to employees from the public, private, and even unorganised sectors.
The programme encourages employees to contribute to a pension account at regular intervals throughout their employment period. Subscribers can withdraw a set amount of the corpus once they retire. The leftover money is disbursed after retirement as a monthly pension if the subscriber has an NPS account.
What are the Features and Benefits of NPS?
Interest/Returns: A part of the NPS is invested in stocks (this may not offer guaranteed returns). It does, however, provide much better returns than other classic tax-saving investments such as the PPF. It yields returns of 8-10 per cent on an annualised basis. If you are unhappy with the fund’s performance, you have the option of changing your fund manager in NPS.
Tax Benefits: For NPS, you may claim a deduction of up to Rs 1.5 lakh for both your contribution and the employer’s contribution. The maximum deduction that may be claimed is 10 per cent of one’s wage. This ceiling is set at 20 per cent of gross income for self-employed taxpayers. This benefit does not apply to self-employed taxpayers because it covers the employer’s NPS payment. The lowest of the following amounts is the maximum that can be deducted: Employer’s actual NPS contribution is 10 per cent of Basic plus DA (Dearness Allowance) and Gross Total Income.
Withdrawal after 60: You cannot withdraw the whole corpus of the NPS system after retirement, contrary to popular assumptions. To obtain a regular pension from a PFRDA-registered insurance business, you must set aside at least 40 per cent of your corpus. The remaining 60 per cent is now tax-free, and the whole NPS withdrawal corpus is tax-free as well.
Allocating Equity:The NPS invests in a variety of schemes, with Scheme E focusing on equity. A maximum of 50 per cent of your investment can be allocated to stocks. There are two types of investments to consider: auto choice and active choice. According to your age, the auto decision determines the risk profile of your assets. For example, as you become older, your investments become more steady and less risky. You may choose the scheme and divide your money with active choosing.
Easier Withdrawal: The Pension Fund Regulatory and Development Authority (PFRDA) has made it easier to withdraw or depart from the National Pension System (NPS). After the Covid-19 outbreak, the pension fund regulator has granted special permission to Points of Presence (PoPs) to accept scanned and self-certified photographs of exit documentation through digital mode to fulfil subscribers’ withdrawal requests. The NPS withdrawal relaxation is valid until June 30, when the CRA is scheduled to put out an “online paperless exit process” based on OTP/e-sign for the benefit of NPS users.
Before authorising a withdrawal, request based on soft copies, the beneficiary bank data must be confirmed and matched as part of extra due diligence. All of these records must be provided to the CRA in soft copy at the same time. It should also be highlighted that if a dispute arises from such transactions at a later point, the POPs will be completely accountable.
The Centre has authorised raising the minimum age to join the National Pension System (NPS) from 65 to 70 years, with no limit on investment as long as the sources are disclosed. This would allow taxpayers to save money on taxes by contributing to the NPS until they are 75 years old.
Why consider an NPS investment?
The NPS is a good option for anyone who wants to start saving for retirement early and isn’t afraid of taking risks. A regular pension (income) in retirement would undoubtedly be beneficial, particularly for those who retire from private-sector. Salaried workers who wish to maximise their tax benefits should also explore this plan. A well-planned investment like this may have a significant impact on your life after retirement.