NPS

The National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme in India. It is designed to enable systematic savings during the subscriber’s working life and provide retirement income. NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and is available to all citizens of India, including residents and Non-Resident Indians (NRIs).

  1. Eligibility:

    • Open to all citizens of India aged 18-70 years.
    • NRIs are also eligible to subscribe to NPS.

  2. Types of Accounts:

    • Tier I Account: This is the primary pension account with certain restrictions on withdrawals. It is mandatory for all subscribers.
    • Tier II Account: This is a voluntary savings account without withdrawal restrictions, offering greater flexibility.

  3. Contribution:

    • Minimum contribution for Tier I: ₹500 per contribution and ₹1,000 per year.
    • Minimum contribution for Tier II: ₹250 per contribution, with no minimum balance required.

  4. Investment Options:

    • Active Choice: Subscribers can actively manage their investments by selecting the asset allocation among equity (E), corporate bonds (C), and government securities (G).
    • Auto Choice: A lifecycle fund option where the allocation to various asset classes is determined by the subscriber’s age.

  5. Tax Benefits:

    • Contributions to NPS are eligible for tax deductions under Section 80CCD(1), 80CCD(1B), and 80CCD(2) of the Income Tax Act.
    • An additional deduction of ₹50,000 is available under Section 80CCD(1B).

  6. Withdrawal Rules:

    • Before Retirement: Partial withdrawals are allowed after 3 years, subject to certain conditions, such as higher education, marriage of children, purchase/construction of a house, or treatment of critical illnesses.
    • At Retirement (at age 60): Up to 60% of the corpus can be withdrawn as a lump sum, which is tax-free. The remaining 40% must be used to purchase an annuity, providing a regular pension.