The National Pension Scheme (NPS) was launched by the Government of India in 2004, as a government-sponsored pension scheme. While originally meant only for government employees, it was made accessible to all Indian citizens in 2009.
It is one of the best investments for citizens of India, since it ensures a secure retired life and acts as a tax free investment during their working life. Finserv MARKETS, which offers individuals the chance to open their NPS account, allows this chance to subscribe to the best investment plan in India to all Indian citizens aged between 18 to 65 years. The minimum age for exiting from this investment is 10 years after opening an NPS account, while the maximum age for exit is set at 70 years.
NPS is the best investment because of the host of tax benefits it offers to subscribers. Individual subscribers can claim a tax deduction up to 10% of gross income under Section 80 CCD(1) within an overall ceiling of Rs. 1.5 lakh under Section 80 CCE of the Income Tax Act, 1961. Additional deductions on investments up to Rs. 50,000 in NPS (Tier I) account is also available under subsection 80CCD (1B).
The best investment plan, NPS also offers tax benefits on partial withdrawal of funds. For instance, the amount withdrawn up to 25% of subscriber contribution is exempt from tax. At the time of lump-sum withdrawal, when the subscriber has attained the age of 60 years, up to 60% of the total corpus withdrawn is exempt from tax.
Investing in the NPS through the Finserv MARKETS allows subscribers utter transparency in handling their NPS account. Subscribers are first allotted an exclusive Permanent Retirement Account Number (PRAN) and they have the freedom to operate their account from anywhere at all. The account can be tracked and even ported if the subscriber moves to a different city, with the utmost ease.
The NPS is essentially a scheme that provides for a secure retirement. This means that the lump sum corpus can be withdrawn when the subscriber turns 60 years old, provided he or she is retired by that time. The scheme can be extended for another 10 years, that is until the subscriber turns 70 years old. Even at the time of retirement, the subscriber can only withdraw up to 60% of the accumulated corpus while the balance 40% needs to be used for the purchase of annuity which will provide a ensure pension to the subscriber. Why NPS is touted as the best tax-free investment is because the amount that is invested in the purchase of annuity is completely exempt from taxes.
It is also possible to make partial withdrawals from the corpus before the subscriber attains the age of retirement. The Budget 2017 allowed for this provision since earlier partial withdrawals were not allowed from the NPS fund. Currently, the Pension Fund Regulatory and Development Authority (PFRDA) which is the regulatory authority for pensions in India, allows for partial withdrawals from NPS up to 25% of the contribution made by the subscriber.
For instance, if Rs. 6 lakh is the contribution that the subscriber has made to the NPS and it has grown into a corpus of Rs. 14 lakh over a period of 11 years. If the subscriber wishes to make a partial withdrawal, he will be allowed to withdraw 25% of the Rs. 6 lakh invested and not of the corpus which is Rs. 14 lakh. Thus, the subscriber will only be allowed to withdraw Rs. 1.5 lakh.
This amount will not be taxable.
However, partial withdrawal of NPS funds is subject to certain conditions. These include:
- Partial withdrawal of NPS funds is only allowed for specific purposes such as for higher education or marriage of children, purchase or construction of a residential house or for treatment of specified disease.
- The individual who wishes to withdraw the funds must have subscribed to NPS for at least 10 years prior to making the withdrawal
- During the entire tenure of contributing to NPS, partial withdrawals are only allowed thrice
- Between two withdrawals, there must be a gap of at least five years. This condition is however not valid if the withdrawal of funds is sought for treatment of specified illness.
As a subscriber, you can choose to withdraw your funds at any time or age of your choosing, providing the above conditions are satisfied. While the amount withdrawn will not be taxable, you will be allowed to withdraw only 20% of the accumulated wealth in NPS. The balance 80% will have to utilized for purchase of annuity.
NPS is considered the best investment plan because of the security it provides for retired persons. It is the best investment, especially considering it is a risk-free subscription wherein the subscriber is eligible for an income in the form of annuity even after retirement.
Opting for NPS via Finserv MARKETS guarantees several more benefits along with the best investments. Subscribers are offered flexibility of choice, wherein they can switch between investment plans and fund managers. This tax-free investment ensures multiple tax exemptions which further amplify the corpus the subscriber receives.
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