Investment in National Pension Scheme (NPS) for A.Y. 2022-23 & 2023-24

Investment in National Pension Scheme (NPS)

National Pension System (NPS) is a retirement benefit Scheme introduced by the Government of India to facilitate a regular income post retirement to all the subscribers. PFRDA (Pension Fund Regulatory anti-Development Authority) is the governing body for NPS.

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 the Central Government employees. Now, however, the PFRDA has made it open to all Indian citizens on a voluntary basis.

Features & Benefits

PRAN which is allotted to every subscriber. In order to encourage savings, the Government of India has made the scheme reassuring from security point of view and has offered some attractive benefits for. NPS account holders.

An NPS Account offers the following benefits:

Regulated:

NPS is regulated by PFRDA (Pension Fund Regulator under Ministry of
Finance, Govt. of India.) which ensures transparent norms governing the activities. NPS Trust ensures adherence to the guidelines through regular monitoring.

Voluntary:

It is a voluntary scheme for all citizens of India. You can invest any amount in your NPS account and at any time.

Flexibility:

You have the flexibility to select or change the POP (Point of Presence). investment pattern and hind manager. This ensures that you can optimize returns as per your comfort with various asset class (Equity, Corporate Bonds. Government Securities and Alternate Assets) and hind managers.

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Economical:

NPS is one of the lowest cost investment products available.

Portability:

NPS account or PRAN will remain same irrespective of change in employment, city or state.

Superannuation Fund transfer:

NPS account holders can transfer their Superannuation funds to their NPS account without any tax implication. (Post approval from relevant authorities)

Tax Benefits:

NPS offers Triple Tax Benefits which are as follows:

Tax benefits for Salaried Individual Tax Benefits for Self Employed Individual
You can claim tax exemption up to Rs. 50,000 under section 80CCD (1B). This benefit is over an above limit of Rs. 1,50,000 under section 80C. You may invest upto 20% of your gross annual income and claim tax exemption on the invested amount under section 80CCD(1). This tax exemption is subject to a limit of Rs. 1,50,000 under section 80C of Income Tax Act, 1961.

Types of NPS Accounts

NPS accounts are primarily of two types, Individua NPS account (All Citizens Model) and Corporate NPS account.

All Citizen Model

In an Individual NPS account, the subscriber (Account holder) is the only contributor. All selections pertaining to Scheme preference, Investment choice, Annuity Service Provider, etc. are done by the subscriber alone. Any citizen of India can voluntarily choose to open an Individual NPS account to avail tax benefits on investments and to ensure regular income post retirement. Entry age is from 18 to 70 years.

Corporate Model

In Corporate NPS account, the subscriber and the employer can both contribute to the subscriber’s NPS account. A corporate entity will have to register for corporate NPS for the employees to be able to avail corporate NPS benefit. Know more about corporate NPS.

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Tires in NPS

You have the option to open two sub accounts under the same Permanent Retirement Account Number (PRAN). These sub accounts arc called as tiers in NPS:

  • Tier-I: It is also called as pension account. Contributions upto Rs. 50,000 made in this account are eligible for additional deduction from taxable income under section 80CCD (1B). This is over and above limit of Rs 1.5 lakhs under section 80C. Withdrawals are restricted and subject to terms and conditions.
  • Tier-II: You can invest an additional amount in Tier-II NPS account. Subscriber is free to withdraw his entire accrued corpus under Tier-II at any point of time. In case you have not contributed even the initial contribution towards Tier-II a/c, it will be automatically deactivated as per process. No tax benefits are available in this account. Funds from Tier-li can be transferred to Tier-I

* Funds from Tier-I cannot be transferred to Tier-II.

You have the option to open two sub accounts under the same Permanent Retirement Account Number (PRAN). These sub accounts are called as tiers in NPS:

NPS Account Opening Contribution: Particulars Tire-I Tire-II
Minimum Contribution
required at the time of account opening
Rs. 500 Rs. 1,000
Minimum Subsequent
Contribution amount required
Rs. 500 Rs. 250
Minimum number contributions required in a year I NIL

The Tier-I account is mandatory for everyone who opts for the NPS scheme. The Central Government employees have to contribute 10% of their basic salary. For everyone else, the NPS is a voluntary investment option.

How much deduction available under section 80C for investment in insurance policies

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The Income-tax Act, 1961 offers tax-saving benefits on investment instruments such as savings plans, life insurance premium, PPF and much more under Section 80C and its sub-sections. Section 80C deduction enables you to reduce your taxable income by up to Rs. 1.5 lakh every financial year.

Eligible premium under sub-section (3) and (3A) of section 80C on IT ACT, 1961 for life insurance policies (other than contract for deferred annuity)

Section 80C of the Income-tax Act prescribes several instruments that not only offer income tax saving benefits, but also provide financial returns throughout the policy period. Total 80C limit as per the Income-tax Act, 1961 is Rs. 1.5 lakh per financial year.

Issued from 01.04.2012 — premium paid not in excess of 10% of Capital Sum Assured

(a)       a person with disability or a person with severe disability as referred to in section 80U,

(b)       suffering from disease or ailment as specified in the rules made under section 80DDB.

Therefore, it is clear from section 80C (3) that whatever insurance premium is paid for any insurance policy (other than deferred annuity) or ULIP, the maximum allowable is fixed at 10% of the sum assured.

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