What is National Pension Scheme?
The National Pension Scheme (NPS) is a social security initiative by the Central Government. This pension programme is open to employees from the public, private and even the unorganised sectors except those from the armed forces.
The scheme encourages people to invest in a pension account at regular intervals during the course of their employment. After retirement, the subscribers can take out a certain percentage of the corpus. As an NPS account holder, you will receive the remaining amount as a monthly pension post your retirement.
Earlier, the NPS scheme covered only Central Government employees. Central Government employees joining on or after 01-01- 2004 are mandatorily covered under the NPS. Now, however, the PFRDA has made it open to all Indian citizens on a voluntary basis.
The NPS scheme holds immense value for anyone who works in the private sector and requires a regular pension after retirement. The scheme is portable across jobs and locations, with tax benefits under Section 80C and Section 80CCD.
Tax Benefits Under NPS
The National Pension Scheme (NPS) offers several benefits to investors:
Tax Benefits for Employees' Contributions
- Deduction of up to 10% of pay (Basic + DA) under Section 80CCD(1), with a maximum of Rs.1.5 lakh under Section 80CCE.
- Additional deduction of up to Rs.50,000 under Section 80CCD(1B), along with the overall limit of Rs.1.5 lakh under Section 80CCE.
Tax Benefits for Employer Contributions
- Employer's contribution eligible for a tax deduction of up to 10% of salary (Basic + DA) under Section 80CCD(2).
- If the Central Government makes the contribution, the limit is 14% of salary, going beyond the Rs.1.5 lakh limit under Section 80CCE.
Returns/Interest
- NPS invests a portion in equities, providing potentially higher returns compared to traditional tax-saving investments like PPF.
- Historical data shows annualized returns ranging from 9% to 12%.
- Investors can change fund managers if dissatisfied with performance.
Risk Assessment
- Equity exposure is capped between 75% to 50%, reducing gradually from age 50.
- For investors aged 60 and above, the cap is fixed at 50%, mitigating equity market volatility.
- Offers higher earning potential compared to fixed-income schemes.
Regulated
- Regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
- Transparent investment norms with regular performance reviews and fund manager monitoring by NPS Trust.
Flexibility
- Flexible subscription; contributions can be made at any time in a financial year.
- Investors can change the subscription amount and choose their investment options.
- Online account management available, allowing operation from anywhere, even with changes in city or employment.
LOOKING FOR THE BEST
INVESTMENT DEALS?
Get Insurance Right Now