This year the finance minister in his budget speech on 28th Feb 2015, made a revolutionary announcement with regards to the National Pension System or NPS. He created a separate window of tax deduction for this financial product aimed at retirement. Now, before we understand this budgetary provision in detail, let us take a look at the product, because even for a financial adviser like me, this product was quite confusing in its first impression.
What is NPS?
NPS or the National pension system was launched on 1st January, 2004 with the objective of providing retirement income to all the citizens. NPS aims to institute pension reforms and to inculcate the habit of saving for retirement among the citizens.
What are the different options available in NPS?
There are two options available, but for those who want to save for retirement and avail tax benefits you have to open Tier I Account.
Why you need to open a NPS A/c?
1. It is transparent - NPS is transparent and cost effective system wherein the pension contributions are invested in the pension fund schemes and the employee will be able to know the value of the investment on day to day basis.
2. It is simple - All the subscriber has to do, is to open an account with his/her nodal office and get a Permanent Retirement Account Number (PRAN).
3. It is portable - Each employee is identified by a unique number and has a separate PRAN which is portable i.e., will remain same even if an employee gets transferred to any other office.
4. It is regulated - NPS is regulated by Pension Fund Regulatory and Development Authority, with transparent investment norms & regular monitoring and performance review of fund managers by NPS Trust.
What are the tax benefits of opening a NPS A/c.?
Presently, the tax treatment for contribution made in Tier I account is Exempted-Exempted-Taxed (EET) i.e., the amount contributed is entitled for deduction from gross total income upto Rs.1.50 lakh (along with other prescribed investments) as per section 80C (as per the provisions of the Income Tax Act, 1961 as amended from time to time).
The appreciation accrued on the contribution and the amount used by the subscriber to buy the annuity is not taxable. Only the amount withdrawn by the subscriber after the age of 60 is taxable.
Additional Benefit Available till 31 March 2017
To encourage people from the unorganised sector to voluntarily save for their retirement the Central Government launched a co-contributory pension scheme, 'Swavalamban Scheme' in the Union Budget of 2010-11. Under Swavalamban Scheme, the government will contribute a sum of Rs.1,000 to each eligible NPS subscriber who contributes a minimum of Rs.1,000 and maximum Rs.12,000 per annum. This scheme is presently applicable upto F.Y.2016-17.\
What are the charges applicable?
To be continued....
Image source Businesstoday.in
Nice Post!! Thanks for the info!
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