A Brief – National Pension System in India
by CCH Online CCH Tax OnlineThe 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 02:29. Viewed 460 times.