The government in the Union Budget of 2019 has announced new NPS regulations. The changes include increasing the income tax exemption limit for all NPS subscribers while withdrawing the corpus from the pension scheme and additional benefits for central government employees like allowing more flexibility to these subscribers in management of funds. On July 26, 2019, there was another change in the scheme when the NPS trust announced marginal increase in the charges for NPS subscribers. Before knowing the new NPS regulations, you must understand the key features of the National Pension Scheme.
What is the NPS?
People from the public, private and organised sectors can participate in this social security initiative of the union government, which provides pension income along with market-based returns. It was implemented by the government on May 1, 2009. As per the scheme, people from the three sectors can invest during the tenure of their employment, and withdraw a certain amount from the corpus after retirement. The remaining has to be availed monthly pensions. The National Pension Scheme is based on unique Permanent Retirement Account Number (PRAN) which is allotted to every subscriber for NPS. The scheme is regulated and managed by the Pension Fund Regulatory and Development Authority (PFRDA).
A key benefit of the NPS is that it is an efficient tax saving instrument. You can claim a deduction upto Rs 1.5 lakh for your contribution as well as the contribution of the employer under Sections 80 CCD(1) and 80 CCD(2) of the Income Tax Act.
How does the NPS work?
Upon joining, you are allotted a Permanent Retirement Account Number (PRAN). All your contributions towards the National Pension Scheme is made directly through the employer that you work for. At retirement or during exit from the scheme, this corpus of funds is made available to you. But it isn’t made available in its entirety. You are required to redirect some amount from this corpus to be invested in an annuity scheme. This portion will then serve as a monthly pension which is provided to you, post-retirement.
Types of NPS accounts: Under the scheme, two sub-accounts, Tier-I and Tier-II, are provided. Tier-I account is mandatory, besides being a non-withdrawable retirement account. You can withdraw the amount only after meeting the prescribed exit conditions under the NPS. On the other hand, Tier-II is a voluntary savings facility available as an add-on to the Tier-I account. You are free to withdraw your savings from this account.
Here is a list of four new NPS regulations:
Tax exemption: The government has increased the exemption limit on withdrawal at 60 years of age, or at retirement, from 40% to 60%. According to the NPS rules, an NPS subscriber can withdraw only 60% of the corpus from the Tier I account. The rest has to be invested in annuities. This new regulation makes the NPS an EEE (Exempt, Exempt, Exempt) instrument. You must keep in mind that earlier 40% of the withdrawal amount was tax-free, while the remaining 20% was taxable. This new NPS regulation has made the NPS at par with long-term investment instruments like the Public Provident Fund (PPF) and Employees Provident Fund (EPF). You must, however, note that this benefit of the NPS will take effect from the assessment year of 2020-2021.
Levy of administrative charges: In July 2019, the NPS trust announced a new rule for recovery of administrative charges from all subscribers from August 1, 2019. As per the new NPS regulation, the trust would levy an administrative charge at 0.005% per annum of the Asset under Management (AUM) on daily accrual basis to meet its expenditure.
Increase in government contribution to central government subscribers: As per the new NPS regulations, the government increased its contribution for central government employees from the existing 10% to 14%. The new regulation was put into effect from April 1, 2019. This move will benefit more than 18 lakh central government employees, who are part of the NPS. You must note that this increase is not for private sector employees. The government also provided tax-benefits under Section 80 C to central government employees with respect to their Tier II account, provided that funds were locked-in for a minimum period of three years. This tax benefit of the NPS will commence from the assessment year of 2020-2021.
Flexibility to central government subscribers in selection of Pension Fund Managers (PFMs) and investment in equities: As per the new NPS regulations, central government employees, who are a part of the NPS, can change their PFM once in year. If you are a central government employee, then you can choose even a private sector PFM. Another benefit of the NPM, to the central government subscribers is that they can choose their asset allocation into equities up to 50%. Earlier, a central government subscriber could invest only 15% of the contributions in equities, in the Active mode of investment.
The benefits of these new NPS regulations are available to any subscriber who can choose to invest in this safe, low-risk scheme on Finserv MARKETS.Besides, being a safe investment scheme, you can avail a host of tax-benefits of the scheme on Finserv MARKETS.
The new NPS regulations, which brings the NPS under the EEE cover, besides providing additional benefits to central government employees, will have a major impact on retirement planning, both to existing and prospective subscribers. Tax experts in India are expecting that, in future, the benefits provided to central government employees like increase in employer’s contribution and other tax benefits, would be extended to private sector employees as well.
If you want to invest in this scheme, you can avail additional benefits of the scheme only on Finserv MARKETS. Along with a slew of investment options, you can easily choose or shift between different fund managers. Here, the key highlight is the 100% transparency with no hidden costs. Opening a NPS account on Finserv MARKETS is an easy online process, and you do not need to visit any branch. With online accessibility, even if you move from one city to another, you can still manage and track your NPS account.
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