national pension scheme

National Pension System (NPS) is a voluntary, defined contribution scheme that is introduced by the Government of India, with the objective of extending the old age financial security to all the citizens who opt for this scheme.National Pension System (NPS) is an easily accessible, low cost, tax-efficient, flexible and portable retirement savings account. NPS is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life. NPS seeks to inculcate the habit of saving for retirement amongst the citizens. It is an attempt towards finding a sustainable solution to the problem of providing adequate retirement income to every citizen of India. Under the NPS, individuals can accumulate a pension corpus during their work life to meet their post-retirement financial needs. These contributions would grow and accumulate over the years, depending on the returns earned on the investment made.The greater the value of the contributions made, the greater the investments achieved, the longer the term over which the fund accumulates and the lower the charges deducted, the larger would be the eventual benefit of the accumulated pension wealth likely to be.

Contributions + Investment Growth - Charges = Accumulated Pension Wealth

Benefits of National Pension System

1. It is voluntary - A Subscriber can contribute at any point of time in a Financial Year and also change the amount he wants to set aside and save every year.
2. It is Economical : NPS is one of the lowest cost investment products available.
3. It is flexible - Subscribers can choose their own investment options and pension fund.
4. It is portable - Subscribers can operate their account from anywhere, even if they change the city and/or employment.
5. It is regulated - NPS is regulated by PFRDA, with transparent investment norms and regular monitoring and performance review of fund managers by NPS Trust
6. It saves Additional Tax - Contributions made are eligible for additional tax deduction benefit on voluntary contribution of up to Rs. 50,000/-under section 80CCD (1B), over and above Rs.1,50,000/-u/s 80C.

Who should invest in NPS?

The NPS is a good scheme for anyone who wants to plan for their retirement early on and has a low-risk appetite. A regular pension (income) in retirement years will no doubt be a boon, especially for those individuals who retire from private sector jobs.A systematic investment like this can make a massive difference to the subscriber’s life post-retirement. In fact, Salaried people who want to make the most of the 80C deductions can also consider this scheme.

Tax Benefits under NPS

A tax exemption of Rs.1.5 lakh can be claimed on the employee’s and employer’s contribution towards the National Pension System (NPS). Tax benefits can be claimed under following sections of the Income Tax Act:

1. Rs. 1,50,000 as per section 80CCD(1), which comes under Section 80C, covers self-contribution. Salaried employees can claim a maximum deduction of 10% of their salary, while self-employed individuals can claim up to 20% of their gross income.
2. 80CCD(2), The maximum amount that an individual is eligible for deduction is either the employer’s NPS contribution or 10% of basic salary plus Dearness Allowance (DA).which is also a part of Section 80C, covers the employer’s contribution towards NPS.
3. Individual can claim Additional tax benefit on NPS investment of Rs. 50,000 for any other self-contributions under Section 80CCD(1B).

Therefore, individuals can claim up to Rs.2 lakh as tax benefits under NPS.