NATIONAL PENSION SYSTEM
A group called the Pension Fund Regulatory and Development Authority (PFRDA) has been in charge of and regulated the National Pension System (NPS). It was set up under the PFRDA Act, 2013.
NPS is a product that is linked to the market and has a set amount of money that people can put in. Under the NPS, each subscriber is given a unique Permanent Retirement Account Number (PRAN) by the Central Recordkeeping Agency (CRA). This number is used to keep track of each person’s account.
NPS has two types of accounts: Tier-I and Tier-II.
Tier-I is the pension account that has a limit on how much money you can take out.
Tier-II It’s possible to open a Tier-II account, which allows you to make investments and get them back quickly. Only if the subscriber has a Tier-I account in their name can they do this. Contributions keep adding up over time until they grow with market-linked returns when you retire.
On exit/retirement/superannuation, a minimum of 40% of the corpus must be used to get a pension for life by buying an annuity from a life insurance company. The rest of the corpus is paid out as a lump sum.
The NPS platform has different models to fit different types of users. These are:
NPS is required for all Central and State Government employees who were hired after January 1, 2004 (except for the Armed Forces). • NPS is not required for employees who were hired before that date. All State Governments, except for West Bengal, have since adopted the NPS for their employees. Those who work for the government have to pay 10 percent of their salary each month, and the government pays a matching amount. For employees of the central
government, the employer’s contribution rate has been raised to 14% from 1 April 2019.
• Companies can use the NPS for their employees, with contribution rates that depend on their job.
It’s called the All-Citizens Model, and it lets all Indian citizens between the ages of 18 and 65 sign up for the NPS on their own.
• How to join NPS:
To join the NPS, you have to go through a nodal officer for government employees, your employer or POP for corporate employees, or a POP or eNPS for other people.
The NPS is run by a group of people who work for the PFRDA. These people are the pension funds, the custodian, the Central Recordkeeping Agency (CRA), the National Pension System Trust, the Trustee Bank, the Points of Presence (Pop), and the Annuity Service Providers (ASPs).
Important features of NPS:
•The NPS subscribers can access their pension accounts online through a web portal and a mobile app, no matter where they live or where they work. They can also move jobs.
As long as you’re in the NPS, you can get back up to 25% of your own money. You can do this three times during the whole time you’re in the plan. There must be a five-year break between each partial withdrawal from NPS Tier-1. You can only do this if you’ve contributed for at least ten years.
Tax Benefits available under NPS:
(a)Tax deductions for contributions made by employees to NPS Tier-I are available under section 80 CCD (1), which is part of the Income Tax Act. The total amount of money that can be deducted under section 80 C is Rs. 1.50 lakh.
When someone contributes to their NPS Tier- I account in the fiscal year 2015-16, they can also get a tax deduction for that money. This is in addition to the tax deduction that can be taken under section 80CCD (1) for that money (B).
b) Section 80CCD (2) of the Income Tax Act says that employers can write off their contributions to the NPS Tier-I fund as a tax write-off (14 percent of salary for central government employees and 10 percent for others). Section 80C limits the amount of money you can get back. This rebate is more than that.
c) You can withdraw up to 25% of your contributions from NPS Tier-I tax-free at any time.
After 1.4.2019, if you take a lump sum from the NPS Tier-I fund when you retire, you won’t have to pay taxes on it.
d) At least 40% of the money used to buy an annuity from an Annuity Service Provider that is registered and regulated by the Insurance Regulatory and Development Authority (IRDA) and approved by PFRDA is not taxed.