Understanding National Pension System

 Understanding National Pension System

The Pension Fund Regulatory and Development Authority (PFRDA) is the Authority to regulate the provisions of National Pension System. The persons who opt to join National Pension System are provided a Unique Account Number known as Permanent Retirement Account Number i.e. PRAN. The records relating to transactions in PRAN are maintained by Central Recordkeeping Agency (CRA).

Tier I and Tier II Account:

First of all, Tier-I Account is opened automatically after joining the National Pension System. The Tier-II Account is not mandatory but can be opened if anyone wants to maintain it as an investment.

How much returns are earned?

The National Pension System returns depends upon the Net Asset Value of the units, in which the amount is invested. The amount grows with Market Linked Returns, on accumulated contributions of Tier-I and Tier-II over a period of time.

How much amount is withdrawn on Exit?

As per National Pension System rules, at least 40% of the corpus of the amount on exit, is required to be utilized for procuring a pension plan. Whatever percentage is opted by the subscriber on exit, the remaining amount can be realized out of the corpus. The amount utilized in purchase of pension plan is tax exempt.

The maximum amount i.e. 60% of the corpus in the hands of subscriber is tax exempt.

Why Government Employees are required to contribute mandatorily?

The Central Government Employees recruited on or after 01.01.2014 and the employees of State Governments except West Bengal, are required to contribute at the rate of 10% of the salary in NPS and an equal amount is also contributed by the Government. However, on 01.04.2019, a decision was taken in the Central Government to enhance the rate to 14%. For Government employees, there are nodal officers for maintaining the contributions.

On employee’s contribution, the deduction of 80CCD (1B) can be taken in income tax up to an amount of Rs. 50,000.

The citizens and companies can adopt National Pension System on voluntary basis. For individual Citizens, there are ‘Point of Presence (PoP)’ and now eNPS portal for maintaining contributions and downloading of statements. For companies, the employers or ‘Point of Presence (PoP)’ maintains the contributions.

How NPS is Administered?

Without intermediaries, it seems impossible to maintain wide scope of National Pension System; therefore, the PFRDA appointed Central Recordkeeping Agency (CRA), NPS Trust, Points of Presence (PoP) and Annuity Service Providers (ASPs) for administering NPS. Now a days, it is possible for the subscribers to manage NPS with the help of mobile app also.

Partial Withdrawl from NPS Tier-I:

Maximum three times partial withdrawl can be done. Up to 25% of the own contribution of subscriber in each time. The partial withdrawl can be done after contributing for at least 3 years or 3 years from the date of PRAN Number. Between two such withdrawls, there should be at least 5 years gap. There is not tax payable on such withdrawl.

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