Imagine waiting for your favorite dessert at the end of the meal. It feels so surreal, right? But getting the same dessert the next day after a meal gives you more joy than the previous day. In the same way, savings may seem good to understand now, but its sweetness is realized when you need it most unexpectedly.
Savings are like that helping hand that saves you from rainy days. When life throws lemons at you, savings help you to make a lemonade out of it! National Pension Scheme is one such form of savings for Indian citizens that enables you to enjoy that lemonade in your 60s or can also help you enjoy a lemon sorbet, too, if it is invested in the mix of the right investment assets.
National Pension Scheme- Meaning and its Importance
The Central Government introduced the National Pension Scheme on 1 January 2004. The scheme was eligible only for central government employees, but it became available for all Indian citizens on 1 May 2009. The scheme is available for Indian employees working in public, private, and unorganized sectors, except those in the armed forces. The Pension Fund Regulatory and Development Authority Act (PFRDA Act) 2013 regulates the scheme.
NPS scheme is portable, flexible, simple to understand, and caters to retirement needs. The scheme is mandatory for Central Government employees, State Government employees, and other State Autonomous Bodies who have joined the services on or after 1st January 2004. The scheme is also applicable and beneficial for Indian citizens living in the age bracket of 18 to 70 years.
Benefits of the NPS Scheme
Flexible- Entering a candy store but confused about what to buy? NPS scheme is like that huge-hearted mommy that allows you to pick more than one candy and the one you like. The NPS allows an individual to choose from the equity, corporate debt, government securities, and alternative investment funds for investment from the mentioned asset class four available forms. One can select the asset class for investment depending on the risk and return expectation.
Tax Efficiency- An NPS account holder receives a unique Permanent Retirement Account Number (PRAN) for a lifetime offering of income tax benefits under the Income Tax Act 1961.
Easily Portable– Just as we can easily port our number to any telecom brand similarly, the NPS portability option allows an individual to experience hassle-free portability in case of a job or location change. One can also change the fund manager if one wishes to.
Beneficial Saving Form- Investing with the National Pension Scheme benefits an individual as it provides low-cost account maintenance and the best return rate compared to other schemes in the market. So now you can invest in an NPS scheme and enjoy that dream vacation with your partner while relaxing and enjoying the 60s.
Tax Benefits of National Pension Scheme
- A tax deduction of 10% of the basic pay was followed under Section 80CCD(1), which has been changed to 14% after the 2024 budget announcement.
Mentioned above is a rough example of how an employee can benefit from the new tax regime introduced in the 2024 budget.
- Employees working with firms following the new tax regime will be able to receive the tax benefits of NPS scheme amendments.
- Under Section 80CCE, self-employed people contributing to the National Pension Scheme can receive up to 20% of the tax benefits on their gross income, up to a total limit of Rs. 1.15 lakh.
- Self-employed individuals can also avail of a tax deduction of Rs.50,000 under Section 80CCD(1B).
- Partial withdrawal also helps one get a tax exemption when the amount withdrawn is 25%. Certain conditions PFRDA imposes under Section 10(12B) must be followed at withdrawal time.
- Tax exemption is also available on annuity purchase or superannuation under Section 80CCD(5) at 60 years.
- Section 10 also provides tax exemption on lump sum withdrawal of 60% of the NPS accumulated amount at 60 years of age.
Eligibility to Open a National Pension Scheme Account
Getting the first seat to enjoy your school’s skit or annul day, being the student of the school, is always fun. The National Pension Scheme is like a school for all Indians, providing beneficial schemes and saving options for a brighter and more enjoyable 60s for the country’s citizens.
Eligibility for all Indian Citizens
- An Indian citizen residing in India or overseas can open an account for the NPS scheme.
- The individual should be between 18 and 70 years of age when applying for an account.
- One must comply with all the documents required for the KYC as per Subscriber Registration Form.
- NPS scheme is an individual account and cannot be opened on behalf of a third person.
Eligibility for Central Government Employees
- The Central Government made the National Pension Scheme mandatory for all Central Government Employees from 1st January 2004.
- People of the Armed Forces are not eligible for the National Pension Scheme.
- The NPS scheme is also extended to Central Autonomous Bodies employees who joined on or before 1 January 2004.
Eligibility for State Government Employees
- Employees working for the State Government or UT who have adopted the National Pension Scheme are covered by it and are eligible to receive its benefits.
- The scheme is also eligible for State Autonomous Bodies adopting the National Pension Scheme.
Eligibility for Corporate Employees
- The corporation should have adopted the NPS scheme.
- The individual should be an Indian resident (residing in India or overseas).
- The individual should be in the age bracket of 18 to 70 years.
- Comply with the norms of KYC.
NPS Returns and Interest Rates
Returns on investment are the biggest concern for investors. The same policy is followed by the people investing in an NPS scheme. The returns from the NPS scheme depend on the performance of the asset class chosen for the investment. Hence, the returns cannot be estimated in advance. One can choose from equity, government debt, corporate debt, and alternative assets while selecting an asset to invest in the National Pension Scheme.
One can also opt for a mix of assets as per their choice. After finalizing the mix of assets and the fund manager for investment, the investment procedure begins as per the selection of assets. The National Pension Scheme calculator calculates monthly pension and tax benefits in an NPS scheme.
National Pension Scheme also allows Indian citizens to have two types of accounts: Tier I and Tier II. Mentioned below are the different interest rates for various types of assets. (Revised rates as of 30 June 2024):
National Pension Scheme Tier I Returns (Revised rates as of 23rd June 2024)
National Pension Scheme Tier II Returns
Positive Impact of National Pension Scheme After Budget 2024 Announcement
- The amendments will help employees save tax, helping them retain a higher portion of their hard-earned money.
- More money in the NPS account compounding over the years will result in a massive chunk of cash at the withdrawal time.
- Tax benefits in the National Pension Scheme will help more people be aware of savings and their importance, especially corporate sector employees.
Conclusion
The National Pension Scheme’s main aim is to raise awareness about savings and their importance. The scheme is valid for all Indian citizens residing in the country or overseas. The reversed interest rates and changes in the norms of the schemes after the 2024 budget announcement will help people learn about the scheme and its benefits. The scheme also allows an individual to stay financially secure after retirement.
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Also, check out our recent post on:”What Are Focused Mutual Funds?“
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Disclaimer – This article is for educational purposes only and by no means intends to substitute expert guidance. Mutual fund investments are subject to market risks. Please read the scheme related document carefully before investing.
