New Delhi [India]: The World Senior Citizen Day celebrated on August 21, 2023, served as a reminder of the invaluable contributions made by our elders.
The Indian Government, over the years, has made significant strides in acknowledging and rewarding the lifetime of hard work and dedication of senior citizens through progressive pension schemes. One such pension scheme that stands out is the National Pension System (NPS).
National Pension System (NPS)
The National Pension Scheme (NPS) is a pension programme initiated by the central government. Initially, the scheme covered just central government employees, but now it’s open to employees from the public, private, and unorganised sectors.
It offers a range of benefits, including significant returns on the investment, which can be calculated using an NPS Calculator . The calculation is done based on your age and the selected retirement age.
Benefits of the National Pension System (NPS)
Here are a few benefits of the NPS Scheme –
NPS is Regulated
NPS is a regulated initiative overseen by the Pension Fund Regulatory and Development Authority (PFRDA) under the Ministry of Finance, Government of India. This regulatory framework ensures transparency in NPS activities and adherence to guidelines through regular monitoring. The involvement of PFRDA instil confidence in subscribers that their hard-earned money is in safe hands.
NPS is Market-Linked
Unlike many traditional pension schemes that offer guaranteed but often modest returns, a significant portion of the NPS is invested in equities, so the expected returns are potentially higher. Moreover, the NPS Pension Calculator gives a clear picture of the returns and an overview of the annuity, total returns, etc.
NPS is Structured to Favour the Subscriber
The NPS structure prioritises the subscriber’s interests. It comprises two accounts: Tier I and Tier II.
* Tier I Account is a non-withdrawable account and forms the core of NPS. All contributions made to the Tier I account are eligible for tax benefits.
* Tier II Account is a voluntary withdrawable account, and it can only be held by those who have an active Tier I account. It’s worth noting that contributions to the Tier II account do not offer tax benefits.
NPS isn’t Taxing
One of the most compelling reasons to opt for NPS is its tax benefits.
Tax Benefits for Salaried Individuals
You can claim a tax exemption of up to Rs50,000 under Section 80CCD(1B). However, the amount is subject to the limit of Rs1,50,000 under Section 80C.
Tax Benefits for Self-Employed Individuals
Self-employed individuals can invest up to 20% of their gross annual income and enjoy tax exemption on the invested amount under Section 80CCD(1), with the same Rs. 1,50,000 limit under Section 80C.
NPS is Voluntary
The National Pension Scheme is a voluntary scheme available to all Indian citizens. You have the flexibility to invest any amount at any time. Based on the financial situation, you can increase or decrease the contributions and make withdrawals from the Tier-2 account.
NPS is Portable
One of the standout features of NPS is its portability. Your NPS account or Permanent Retirement Account Number (PRAN) remains the same, regardless of changes in employment, city, or state. Moreover, if you are unsatisfied with your fund manager’s performance, NPS allows you to switch to a different one.
NPS is Liquid
The NPS offers flexibility in withdrawal options that allows tailoring the retirement strategy based on specific needs. Presently, you can withdraw up to 60% of the total corpus as a lump sum, with the remaining 40% directed towards an annuity plan. For those with a corpus less than or equal to Rs. 5 lakh, there’s the option to withdraw the entire sum without purchasing an annuity plan.
However, it’s essential to note that the tax treatment of the annuity varies based on your income bracket. While the annuity itself is taxable, the taxation is distributed over the years of payment.
The National Pension System (NPS) is a flexible yet comprehensive retirement solution. It’s regulated, market-linked, flexible, voluntary, and portable. With NPS, you not only secure your future but also enjoy the peace of mind that comes with financial stability in your golden years.
Consider making NPS a part of your retirement planning and evaluate the return benefits using an NPS Calculator today.
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