The National Pension Scheme or NPS is a social security scheme launched by the Central Government that encourages people to invest in a pension account at regular intervals during the course of their employment. This pension program is open to employees from the public, private and even the unorganized sectors with the exception of those from the armed forces. Post retirement, the NPS account holder can take out a certain percentage of the corpus and the remaining amount is locked in an annuity plan.
Earlier, the scheme was limited only to Central Government employees. Today, NPS stands extended to all Indian citizens. NPS holds immense value to anyone who works in the private sector and requires a regular pension after retirement. The scheme enjoys tax benefits under Section 80C and Section 80CCD.
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The initial contribution a Subscriber is required to make is a minimum of Rs 500 for Tier I and a minimum of Rs 1,000 for Tier II at the time of registration. The minimum contribution that the subscriber can make is subject to the following conditions:
Previously the contribution limit of a subscriber per year was only Rs 1 Lakh under Section 80CCD. However, in the 2015 budget, the contribution limit had been increased to Rs 1.5 Lakh. Another subsection, Section 80CCD(1B) had been added to this contribution, where a subscriber can make an additional contribution of Rs 50,000. Now under Section 80C and section 80CCD1(b), subscribers to the National Pension Scheme can claim a tax-rebate up to Rs 2 Lakhs.
Government gives special tax exemption for contribution towards NPS made by the employer on behalf of employees under the corporate model. Under this both employer and employees contribution is liable to income tax deduction. The employer also gets tax benefits for his part of the contribution by showing it as a business expense in the profit and loss account. To make contributions to the employees NPS account, the employer must register himself which is already the case as employer’s makes PF contributions each month. The NPS contribution is in addition to the EPF.
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There is a tax deduction of up to Rs 1.5 lakhs a year under Section 80C on contributions to NPS. Additionally an investment up to Rs 50,000 a year is deductable from taxable income under 80CCD(1b) of the income tax act.
Tax exemption for self employed professionals upon an Investment up to 20% of Gross Annual Income is liable for income tax deduction from taxable income under 80CCD (1) of Income Tax Act, 1961 and is subject to the Rs 1.5 lakh limit of section 80C. Also an additional investment of Rs 50,000 is liable for income tax deduction from taxable income under section 80CCD (1B) of Income Tax Act, 1961.
An NPS account holder must pay the service charges to Point Of Presence for subscribing to the NPS scheme. An Initial subscriber registration charge of Rs 100 and an ad valorem transaction charge of 0.25% of the initial contribution amount from subscribers are subject to a minimum of Rs 20 and a maximum of Rs. 25,000. Any other transaction not involving a contribution from subscriber is subject to a charge of Rs 20.
Other transactions include:
Any other subscriber services as may be prescribed by PFRDA.
The NPS account can be opened through both the online and offline route. The offline method of opening an NPS account is given below:
Offline method: To manually open a NPS account you will have to find a Point of Presence which may be a bank. You must collect an application form from the nearest point of presence. Fill the form and submit it along with the KYC papers.
In case you are already KYC-compliant with the bank, then you can directly proceed to open an NPS. Once the initial investment is made, the bank or the POP will send you a Permanent Retirement Account Number (PRAN). A number and a password will be sent which you can use to operate NPS account. There is a one-time registration fee of Rs 125 for this process.
Opening an NPS account online is easy and the entire process takes less than an hour. Opening an account online becomes even simpler, if you link bank account to PAN, Aadhaar and/or mobile number. An OTP will be sent to registered mobile number. Enter the OTP to validate the process. This will generate a PRAN (Permanent Retirement Account Number), which you can use to operate your account.
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