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What are the benefits of NPS?

Dec 29, 2021 Alankit

National Pension Scheme
As soon as someone mentions retirement, an image consisting of travel, beach, lazy days, catching up with friends, and more conjure up. All of these images are true only if one has worked towards them in the past.

The phrase “Retirement” is a phase where an individual does not have any active money coming towards their way as an individual does not work anymore to earn. So to have a healthy retirement one is supposed to save and invest enough money to last them through their life from the day one stops working.

Perhaps, these issues lead the government of India, to introduce the pension system known as National Pension System (NPS) to encourage people to save towards their retirement or build their retirement corpus. NPS in general is a voluntary retirement scheme set up by the government of India through which one can save for their old age pension.

Managed by PFRDA (Pension Fund Regulatory & Development Authority), NPS is available to all Indian citizens between 18 and 70 years old and can contribute up to 75 years.

NPS Accounts

The primary accounts under NPS are Tier-I and Tier-II. The below chart explains the difference between them.

Particulars NPS Tier-I Account NPS Tier-II Account
Status Default Voluntary
Withdrawals Not Permitted Permitted
Tax exemption Up to Rs 2 lakh p.a.(Under 80C and 80CCD) 1.5 lakh for government employees Other employees-None
Minimum NPS contribution Rs 500 or Rs 500 or Rs 1,000 p.a. Rs 250
Maximum NPS contribution No limit No limit

If you are planning a soothing retired life then invest in NPS and build your retirement corpus efficiently.

Benefits of Tax under NPS

The tax benefits under NPS investments are available under the following sections:

Applicable Sections under the Income Tax Act 1961 Tax Benefits Allowed
U/S 80CCD (1) Own contribution of a subscriber towards Tier I investments tax-deductible within the total ceiling of Rs.1.5 lakh u/s 80C.
U/S 80CCD 1(B) In addition to deductions under section 80CCD (1), subscribers are allowed up to Rs.50,000 as deductions towards Tier I contributions.
U/S 80CCD (2) Contribution of an employer towards Tier I investments is eligible for deduction up to 14% for central government contributions and up to 10% for others. This deduction is over and above the deduction limit applicable u/s 80C.

NPS Withdrawal Rules

Withdrawal After 60

An individual cannot withdraw the entire corpus of the NPS scheme after their retirement. They are compulsorily required to keep at least 40% invested in the scheme as a corpus to receive a regular pension.

According to the updated guidelines from the government says that the entire NPS withdrawal corpus is exempted from tax which was earlier limited to 60% tax-free.

Early Withdrawals

As an investor in the pension scheme, it is important for an individual to continue investing until the age of 60. However, if an individual is investing continuously for three years, then that person is eligible for withdrawals up to 25% for certain purposes.

These ‘certain purposes’ include children’s wedding, higher studies, building/buying a house, or any medical treatment of the investor or the family member.

However, withdrawals are subjected to the following clauses:

  • To apply for partial withdrawals, contributions up to a minimum of 10 years must be made.
  • There should be a minimum gap of 5 years between two consecutive withdrawals.

*These restrictions are only imposed on Tier-I account and not on Tier-II account.*

Alankit for NPS

Alankit is the right choice if you are looking for the best end-to-end NPS-related query solver. As our team of experts undertakes all problems and provides dedicated solutions. We are also responsible for handling and managing your initial subscriber registration and KYC Verification, along with transmitting the information systematically to the designated intermediaries in an uncomplicated manner.

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