All You Should Know about the National Pension Scheme (NPS)
Pension is the amount of money saved through various means by an employee to live comfortably after retirement. Several companies that provide financial services do have pension schemes. Nonetheless, the government also offers many pension schemes.
One of them is the National Pension Scheme (NPS). The Indian government established the PFRDA (Pension Fund Regulatory and Development Authority) in 2003 to regulate the pension schemes in the country. A year later, the National Pension Scheme (NPS) was launched.
The objective of this scheme was to provide citizens with pension funds and make sure the citizens follow the habit of saving for retirement. It was challenging to implement this scheme in the unorganized sector. This led to the formation of pension schemes like Swavalamban Scheme, where the govt contributes Rs.
1000 each year provided the yearly contribution ranges from Rs. 1,000 to Rs. 12,000 each year.
Contributions made to the NPS scheme by both individuals and employees are eligible for tax deductions of up to Rs. 50,000 under Section 80CCD with an overall limit of Rs. 1.5 lakh under Section 80CCE of the Income Tax Act.
Tier 1 contributions offer tax benefits, while tier 2 contributions are taxed as per the individual's applicable income tax slab. 60% of the total corpus can be withdrawn lump sum and the remaining 40% can be received through an annuity plan. If the entire corpus is less than or equal to Rs.
5 lakhs, it can be withdrawn entirely tax-free. For a corpus of Rs. 20 lakhs, the tax-free withdrawal limit would be Rs.
12 lakhs. The remaining amount is received through an annuity plan and is taxed based on individual's tax slab. These provisions make NPS an attractive retirement savings option with tax
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