Regular post-retirement income | Additional tax benefit on investments up to ₹50,000 u/s 80CCD (1B) - EEE Category | Regulated by PFRDA (Pension fund regulator under Ministry of Finance, Govt. of India)

The National Pension Scheme is a social security initiative by the Central Government. The NPS allows you to make contributions that will help you accumulate a corpus for retirement as well as give you a regular source of income post-retirement. On enrolment an individual is allotted a unique Permanent Retirement Account Number (PRAN).

 

This retirement scheme encourages Indian citizens to invest into their NPS account throughout their employment period.

 

Investing in the National Pension Scheme comes with a number of benefits - it offers attractive rates of returns, tax benefits under Section 80CCD, flexibility and portability as it can be transferred across jobs and locations.

Features and Benefits of National Pension Scheme

Here are some of the key features and benefits of the National Pension Scheme.

 

  1. Diversified Investments: A portion of your NPS investment is invested in equities which offers higher earning potential when compared to debt instruments

  2. Tax Benefits: You can get tax benefits for the investments made in the National Pension Scheme under Section 80CCD.

  3. Low-cost Investment: NPS is one of the most economical investment schemes available in the market.

  4. Portability: You can shift to a different employer, city or state but your PRAN will remain the same.

  5. Voluntary Scheme: The NPS is a completely voluntary scheme for Indian citizens.

  6. Flexibility: As investors in the National Pension Scheme, you can choose to change your fund manager if you find that your return on investment is unsatisfactory. This option is available to both Tier I and Tier II NPS account holders.

  7. Superannuation Fund Transfer: Subject to approval from relevant authorities, the superannuation funds can be transferred to their NPS account without any tax implication by NPS account holders.

National Pension Scheme Fund Managers

While opening your NPS account, you need to choose a fund manager who will professionally manage your investments to optimise your returns.

 

The investments are managed by ten fund managers who have been appointed by the Pension Fund Regulatory and Development Authority (PFRDA). You can choose between any of the following pension fund managers:

 

  • SBI Pension Funds Pvt. Ltd.

  • LIC Pension Fund Ltd.

  • UTI Retirement Solutions Ltd.

  • HDFC Pension Management Co. Ltd.

  • ICICI Prudential Pension Fund Management Co. Ltd.

  • Kotak Mahindra Pension Fund Ltd.

  • Aditya Birla Sunlife Pension Management Ltd.

  • Tata Pension Management Ltd.

  • Max Life Pension Fund Management Ltd.

  • Axis Pension Fund Management Ltd.

Types National Pension Scheme Accounts

There are two types of NPS accounts, namely Tier-I and Tier-II that are available to NPS subscribers.

  • Tier-I

Tier-I account is a basic retirement account that has to be opened if you want to avail the benefits of NPS. Under this account, you must make at least 1 contribution per year. The minimum contribution for opening your Tier-I account is ₹500, with the minimum subsequent contribution also being ₹500.

  • Tier-II

Tier-II account is an optional investment account available to subscribers who already have an active Tier-I account, your PRAN for both the accounts will remain the same. Under this account, your minimum contribution for account opening is ₹1000 and the minimum subsequent contribution ₹250.

Different Fund Allocation Patterns of NPS

There are two types of fund allocation patterns that you can choose from for your investment, namely, active choice and auto choice.

  • Active Choice

The Active Choice option allows you to voluntarily distribute your investments across the 4 asset classes:

 

  1. Corporate Bonds (C): Under this asset class, funds are invested in fixed-income debt instruments.

  2. Equity (E): This is a relatively high-risk asset class that is also likely to offer higher returns option, NPS subscribers can invest up to 75% in this asset class.

  3. Alternate Assets (A): Under this asset class, funds are invested in real estate and infrastructure funds. You can only invest up to 5% of investment as this is an extremely risky investment.

  4. Government Securities (G): Funds are invested in Government Securities.

  • Auto Choice

In case you don’t choose ‘Active Choice’ your funds will be invested in a predetermined proportion depending on your age. Exposure to equity will be relatively higher for younger investors, while older investors’ investments will have more exposure towards medium and low risk investment options to optimise risk and return.

 

There are three predefined options under the ‘Auto Choice’ option:

 

  • LC 75 (Aggressive)

  • LC 50 (Moderate)

  • LC 25 (Conservative)

You may select the ‘Auto Choice’ investment option to suit your investment goals and risk appetite.

 

If you choose Auto Choice LC 75 (Aggressive), till the age of 35 your equity exposure will be 75%. As your age increases the equity exposure will decrease by default and debt investment (Government Security and Corporate Bonds) will increase.

Tax Benefits of National Pension Scheme

You can claim tax benefits for your NPS investments under the Section 80CCD of the Income Tax Act. Whether your NPS investment is being made by you (employee) or your employer, you can still claim your tax benefit.

  • Tax benefits for Salaried Individual

Your NPS investments are tax exempted up to ₹50,000 under section 80CCD (1B). This benefit is in addition to deduction of ₹1,50,000 under section 80C.

 

You may invest up to 10% of your basic salary + dearness allowance and claim tax exemption on the invested amount under section 80CCD (1). This tax exemption is subject to a limit of ₹1,50,000 under section 80C of Income Tax Act, 1961.

  • Tax Benefits for Self Employed Individual

You will be able claim tax exemption up to ₹50,000 under section 80CCD (1B). This exemption is in addition to the limit of ₹1,50,000 under section 80C.

 

You may invest up to 20% of your gross annual income and get tax exempted on the invested amount under section 80CCD (1). Under section 80C of the Income Tax Act, 1961, this tax exemption is subject to a limit of ₹1,50,000.

 

*The above details are for informational purposes only, and is not intended to provide, and should not be relied on as tax advice. You should consult your own tax advisors before engaging in any transaction.

Eligibility Criteria of National Pension Scheme

Here’s the eligibility criteria for opening an NPS account:

 

  •  Must be 18 years of age or older; cannot be over 70 years of age

Why Should You Invest in NPS?

The National Pension Scheme is one of the best retirement-focused investment options available in the Indian market. Here are some of the benefits of investing in this scheme that’ll help you get a better understanding of why you should invest in NPS.

 

  • You can invest in both equities and debt instruments as per your financial goals and risk appetite.

  • NPS offers tax benefits under the 80CCD (1) and 80CCD (2) which may help you lower your tax liabilities.

  • You can choose your preferred PFRDA-appointed fund manager and also change your fund manager if you wish to do so.

  • You can make partial withdrawals under Tier-I NPS accounts.

  • Tier-II NPS account is an investment account where there are no restrictions on the number of deposits and withdrawals.

  • Your investment positions in equities decrease as you age, as per the National Pension Scheme conditions, which helps you avoid unwarranted risks.

  • You can make partial withdrawals under Tier-I account.

Note:

*Bajaj Finserv Direct Limited (BFDL) has partnered with Bajaj Financial Securities Limited (BSFL) registered with PFRDA as Point of Presence (POP) for NPS (PFRDA Reg. No. POP325022021) for sourcing leads or distributing the NPS products. By clicking on “Invest Now” you shall be redirected to BFSL Site (Website/App) and the terms and conditions of BFSL shall additionally apply.

 

Please note that there are no guaranteed returns on Investment in NPS. While NPS is a government scheme, the corpus is created according to the returns, which are generated under the corporate bonds, government securities, and the equity. Hence, the market fluctuations can affect the returns.

 

** The PFRDA has stated that the transferred funds from EPF to NPS will not be treated as income of the current year and hence, not taxed. You also can’t claim the deduction under the 80CCD for the transferred amount to NPS. Under this section, you can claim deduction for a new investment and not for a transfer. 

FAQs About National Pension Scheme

  • ✔️What is the National Pension Scheme (NPS)?

    The National Pension Scheme is a social security initiative by the Central Government. The National Pension Scheme allows you to make contributions that will help you accumulate a corpus for your retirement as well as give you a regular source of income post-retirement. 

  • ✔️How can I get started on opening an NPS account?

    You can open an NPS account by visiting the Bajaj Markets app or website. 

  • ✔️What are NPS Scheme details?

    The National Pension Scheme is a pension scheme that allows you to invest into both equities and debt instruments as per your risk appetite. The National Pension Scheme also gives you a host of tax benefits, partial withdrawal benefits and a regular source of income post retirement.

  • ✔️How many types of National Pension Scheme accounts are there?

    Broadly, there are two types of NPS accounts - Tier-I and Tier-II. The Tier-I serves as a pension account and offers lesser liquidity due to restricted withdrawals, while Tier-II functions as a voluntary account and offers liquidity through withdrawals.

  • ✔️What is the NPS account rule around having more than one National Pension Scheme account?

    You are eligible to have only one NPS account. 

  • ✔️What are the National Pension Scheme (NPS) details?

    The National Pension Scheme is a pension scheme that allows Indian investors to make equity and debt instrument investments which would help them accumulate a corpus at the time of retirement as well as receive pension payments post-retirement. 

  • ✔️Who is eligible to invest in NPS?

    Indian citizens over the age of 18 and under the age of 70, who are KYC-compliant are eligible to invest in the NPS

  • ✔️What documents are required to open an NPS account?

    Here are the documents required to open an NPS account as a resident individual:

    • One Recent Photograph

    • PAN Card

    • Proof of Address

    • Proof for the Bank Account 

  • ✔️What are the investment allocation pattern options that are available to NPS investors?

    There are two investment allocation pattern options available to NPS subscribers, namely, active choice and auto choice as mentioned below:

     

    1. Active Choice

    • Equity (E) – Maximum 75%

    • Corporate Bonds (C) – Up to 100%

    • Government Securities (G) - Up to 100%

    • Alternate Assets (A) – Maximum 5%

     

    1. Auto Choice

    • Conservative Life Cycle Fund (LC25)

    • Moderate Life Cycle Fund (LC50) - Default

    • Aggressive Life Cycle Fund (LC75)

    Here, the number represents the maximum percentage equity exposure allowed under each option.

  • ✔️What are the rules for withdrawal from the Tier-II account?

    Withdrawal from NPS Tier-II account is permitted at any point of time, without any restrictions. 

  • ✔️When can I withdraw my money from an NPS Tier-I Account?

    A subscriber can withdraw from NPS Tier-I account in the following circumstances/conditions:

     

    • Partial Withdrawal - after completion of 3 years, the subscriber can choose to withdraw 25% of his/her own contributions for specific reasons such as illness, purchasing property, education or marriage of children, disability, starting a new venture. An NPS subscriber can partially withdraw a maximum of 3 times during their entire tenure in NPS.

     

    • Premature Withdrawal - post completion of 5 years or before completion of 3 years (if subscriber joined NPS after attaining 60 years of age), an NPS subscriber can withdraw a maximum 20% of the corpus as lump sum and minimum 80% of the corpus has to be utilised for purchasing an annuity plan for receiving the pension. If the accumulated corpus is less than ₹2.5 lakh, the entire corpus is paid as lump sum to the subscriber.

     

    • Normal Withdrawal – on completion of 60 years of age (if the subscriber has joined NPS before 60 years of age) or after completion of 3 years (if the subscriber has joined NPS after 60 years of age), subscriber can withdraw a maximum of 60% of the corpus as lump sum and minimum 40% of the corpus has to be utilised for purchasing an annuity plan for receiving the pension. If the accumulated corpus is less than ₹5 lakhs, the entire corpus is paid as lump sum to the subscriber. 

  • ✔️What are the conditions for Partial Withdrawal?

     Here are some situations for which you can make partial withdrawals:

    • Higher education of children.

    • Marriage of children.

    • For the purchase/construction of residential house (in specified conditions)

    • For treatment of Critical illnesses