Articles

A Brief – National Pension System in India

by CCH Online CCH Tax Online

The Government of India is now catching up with the idea of promoting social security for both younger and older generations. One of the pioneer schemes in this regime is the National Pension Scheme (NPS) rolled out under the Pension Fund Regulatory and Development Authority (PFRDA). Initially, only the Government employees had the luxury of receiving pensions post their retirement years.

But then again, these days everyone has proactively started to plan their retirement & therefore NPS Scheme was launched for both public/private employees and businessmen aged between 18-60 years to make every individual’s retirement planning better. There is a general requirement for Know Your Customer (KYC) details fulfilled for all the people enrolling in the scheme, but the contributions made by the NRIs shall be regulated additionally under the Allied Laws of RBI and FEMA.

NPS offers two tiers of Accounts which are mentioned as follows:

1.    Tier-1: It is a basic level account with a minimum contribution of INR 500/- per month or an aggregate of INR 6,000/- p.a. However, there is a limit of withdrawal of only 40% non-taxable amount before the age of 60 years and the rest 60% taxable amount which shall be exempt only after agreeing to buy an annuity policy from a life insurer.

2.    Tier-2: It is a relatively flexible account as it allows the subscriber to deposit and withdraw the amount easily. Although for the Tier-2 account, one must have a Tier-1 account first. The opening contribution for the Tier-2 account should be a minimum of INR 1,000/- or INR 250/- per month. In addition to this, it is mandatory to maintain a balance of INR 2,000/- at the end of every Financial Year.

Also, the subscriber to the scheme must appoint a nominee, maximum up to 3 at the time of opening an NPS account. A 12-digit unique number called Permanent Retirement Account Number (PRAN) is assigned by the entities authorized to open NPS accounts called Point of Presence (POPs). The POPs assist the subscriber to open an account after submitting proofs of Identity, Address and Date of birth in addition to the necessary forms.

To encourage participation in the scheme, the lawmakers have inserted an additional section under the Direct Tax Act of India. Section 80CCD(1B) stipulated an additional deduction of INR 50,000/- restricted to 10% of salary or gross income, in addition to existing INR 1,50,000/- deduction under section 80CCE. This tax advantage has increased the level of enrollments under the said scheme which will help make the scheme successful at the national level and foster the spirit of thrift among people at large.

 


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Created on Sep 27th 2018 03:29. Viewed 116 times.

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