Introduction
In today’s fast-paced world, planning for the future is essential. The National Pension Scheme (NPS) is a valuable tool that many individuals overlook when considering their retirement options. In this blog post, we will delve into what the NPS is and the tax benefits it offers to investors.
National pension scheme: What is it?
The National Pension Scheme is a voluntary long-term retirement savings scheme launched by the Government of India. It is designed to provide financial security to individuals during their old age. One of the key features of NPS is that it is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), ensuring transparency and accountability in the investment process.
The National Pension System (NPS) is a pension scheme sponsored by the government that was started in 2004 for all government employees. The scheme was made open to all citizens in 2009.
The scheme encourages people to invest in a pension account at regular intervals during their employment. After retirement, subscribers can withdraw a certain percentage of the corpus. As an NPS account holder, you will receive the remaining amount as a monthly pension post your retirement.
NPS is distributed through Points of Presence (POPs), with most banks acting as POPs. To invest in NPS, you must open an NPS account through the POP, who will assist you with account opening, filling out forms, and providing information about NPS. The individual between the age group of 18-70 can contribute to NPS. Every individual subscriber is issued a Permanent Retirement Account Number (PRAN) card.
Types of NPS accounts
Under NPS accounts, two sub-accounts – Tier I and Tier II – are provided.
Tier I account is mandatory, and the subscriber has the option to open a Tier II account. Tier-I accounts are non-withdrawable retirement accounts, requiring exit conditions under NPS.
Tier-II accounts are voluntary savings facilities, allowing subscribers to withdraw their savings at any time. The following is the contributory list:
The funds contributed by the Subscribers are invested by the PFRDA registered Pension Fund Managers (PFMs) as per the investment guidelines provided by PFRDA. The funds are invested in Equities, Government securities, Corporate debt, and Alternative Investments.
The NPS provides two investment options for subscribers: active choice, where individuals choose asset classes and percentages, and auto choice, which automatically manages funds based on the subscriber’s age profile.
Tax Benefits of the National pension Scheme:
The National Pension Scheme provides investors with attractive tax benefits under the Income Tax Act of 1961. These tax benefits make NPS an attractive retirement planning option for individuals looking to save on taxes while securing their future financial needs. Investing in NPS can convert small investments into big savings. At the time of maturity under the NPS scheme, individuals can withdraw 60% of their total corpus, and the remaining 40% is reinvested to provide a pension until the sum turns out to zero.
Tax Deduction :
Investors can claim a deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act for contributions made towards the NPS Tier-I account.(No deductions are available when any investment is made in Tier II)
Additional Deduction:
An exclusive tax deduction of up to Rs. 50,000 is available under Section 80CCD(1B) for contributions made to the NPS Tier-I account, over and above the limit of Rs. 1.5 lakh allowed under Section 80C.
“Taking advantage of the tax benefits offered by the National Pension Scheme can help individuals reduce their tax liability while securing their financial future.”
Conclusion
As we navigate through life’s uncertainties, planning for retirement becomes paramount. The National Pension Scheme not only offers a secure and regulated investment avenue but also provides tax benefits that can help investors build a substantial retirement corpus. By understanding the intricacies of NPS and leveraging its tax benefits, individuals can take proactive steps towards a financially secure future. Start exploring the National Pension Scheme today and pave the way for a comfortable retirement tomorrow.