National Pension Scheme (NPS) Features, Benefits & Rules

Read All about national pension scheme (NPS) features, tax benefits & rules. For more information, visit Zurich Kotak General Insurance.

The Central Government launched the National Pension Scheme as a social security program. Except for members of the military services, employees from the private, public, and even unorganized sectors are eligible for this pension scheme.

The program encourages participants to make periodic contributions to a pension account while still employed. The subscribers can withdraw a pre-specified amount of the corpus after retirement. As a holder of an NPS account, you would get the leftover sum as a monthly pension after your retirement. The NPS program is of great benefit to everyone who works in the private sector and needs a consistent pension after retirement.

What are the features of the national pension systems?

The following are the features of the National Pension System -

• Flexibility

Investors can build their retirement savings through systematic and recurring contributions through the National Pension Scheme. You can open either a Tier I or Tier II account. One perk of the National Pension Program is the ability to select the percentage of money allocated to each asset type under the Active Choice investing scheme.

• Voluntary

An individual may open an NPS account at a certain point in the fiscal year. Customers may also decide how much they wish to save annually and invest, making it voluntary.

• Returns

A part of the NPS is invested in stocks (this may not offer guaranteed returns). However, compared to conventional tax-saving investments like the PPF, it provides far greater returns.

What are the tax benefits of the national pension system?

Sections/Rules	National pension scheme tax benefits
Under section 80 CCD 1(B)	Investors in Tier I NPS accounts are eligible for a tax benefit of INR 50,000 in addition to the Section 80C exemption of INR 1,50,000.
On partial withdrawal	25% of the amount withdrawn is exempted from the NPS deduction of tax.
Annuity purchase	Any investment made to buy an annuity is tax-free. The annuity's income, however, is subject to taxation.
Under section 80CCD 2	Employers who make contributions to Tier I NPS accounts are entitled to a tax exemption of 14% for central government contributions and 10% for other contributions.
On Lump sum withdrawal after 60 years	40% of the amount withdrawn is exempted from the tax deductions.

What are the rules of the national pension scheme system?

The following are the rules of the National Pension Systems -

• Withdrawal rules after 60 years of age

After your retirement, you cannot withdraw the entire corpus of the NPS scheme. You must keep 40% of the corpus amount to receive the pension from PFRDA - a registered insurance firm. However, now 60% of the corpus amount is free to be withdrawn immediately after retirement. The government's most recent update shows that the whole NPS withdrawal corpus is tax-exempt.

• Early withdrawal and exit rules

You must keep investing till the age of 60. However, you may withdraw up to 25% for certain purposes if you have been investing for at least three years, which include - children's weddings, further education, constructing or purchasing a home, or self- or family-related medical care, among others. You are only permitted to withdraw money up to three times (each time with a five-year interval) during the entire tenure. Also, these limitations are only imposed on tier-I accounts.

Consider investing in the NPS plan if the advantages described above meet your risk tolerance and investment objectives. However, there are several mutual funds accessible that cater to investors from many backgrounds if you're willing to have more equity exposure. For more information visit Zurich Kotak General Insurance.

Team Zurich Kotak GIC

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