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How much amount is withdrawn on Exit?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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Tier I and II Accounts of NPS

Tier I and II Accounts of NPS 

The National Pension System (NPS) investments can be done in two types of accounts i.e. Tier I and Tier II accounts. Both types of accounts can be maintained in a single allotted Permanent Retirement Account Number (PRAN). What is difference between Tier I and Tier II account? Where to invest and why? What are the advantages and disadvantages of investing in Tier I and II accounts?

Tier I Account:

The contribution in Tier I account cannot be withdrawn at any time, however it can be partial withdrawal for specific purposes. The investment or contribution in Tier I offers the following tax benefits:

Income Tax Benefits on Tier I contribution of NPS:

Under section 80 CCD (1):

Every citizen is provided deduction for making contribution to his or her pension account. Since National Pension System is a pension account; an employee is provided deduction up to 10% of his salary for contribution in Tier I account. In case of self-employed person, such contribution is allowed up to 20% of the gross total income. However, the maximum deduction under section 80CCD (1) cannot be more than Rs. 1.5 lac.

Under Section 80 CCD (2):

In case, the employer contributes in employee’s NPS account then such contribution is deductible from taxable income of the employee. The contribution can be made up to 10% of the salary i.e. Basic Pay and Dearness Allowance. This deduction is additional to Rs. 1.5 lac of 80 CCD (1).

In case of government organizations making such contribution, the amount is not included in taxable income under the head salary and the government directly deposit into the PRAN number of employee. There is no maximum limit of such contribution.

In case of private organizations making such contribution, the amount is sometimes provided to the employees and counted in their salary; in such cases, deduction is shown under section 80 CCD (2) from the salaries in Form 16.

The organizations are also allowed to claim such contribution under section 80 CCD (2) in employee’s NPS account as business expense in their profit and loss account. There is no monetary limit for such contribution.

Under Section 80 CCD (1B):

Apart from 80 CCD (1), 80 CCD (2); deduction under section 80 CCD (1B) is also allowed for additional amount of Rs. 50000 contributed by the employee in his or her Tier I account. However, in this section, the contributions of Atal Pension Yojana (APY) can also be counted for the purposes of deduction.

Section 80 CCE states that the deduction under sections 80 C, 80 CCC and 80 CCD (1) cannot be more than Rs. 1.5 Lacs. But the deductions under section 80 CCD (2) and 80 CCD(1B) are in addition to this limit of Rs. 1.5 Lac.

Tax Benefits during withdrawal of amount from Tier I of NPS:

As per NPS withdrawal rules notified in 2018, after meeting the following conditions, a subscriber can withdraw up to 25% accumulated corpus of Tier I account of NPS. Such withdrawal is known as partial withdrawal and there is not tax on such withdrawal, if:

(i)        Such withdrawal is after completion of 3 years in NPS

(ii)  Such withdrawal can be maximum up to thrice during the tenure of subscription

(iii)  Specified form along with necessary documents is submitted for the withdrawal claim i.e. for the following purposes:

a)   For higher education of self or children

b)  For setting up or acquiring a new business

c)   For the marriage of children

d)  For constructing or purchasing residential house or flat (only if no residential house is earlier owned)

e)   For treatment of subscriber or spouse or dependent parents suffering from specified illness including Cancer, Kidney Failure, Multiple Sclerosis, Heart Valve Surgery, Coma, Paralysis, serious accident, and other treatments specified in NPS Withdrawal Rules 2018.

In case, the amount of accumulated corpus is withdrawn for purchase of Annuity, then it will not be taxable.

Further, at the time of subscriber attaining the age of 60, if he withdraws amount in lump sum; then 40% of the total corpus amount will be exempt from tax. Remaining 60% which is taxable, can be used to purchase the annuity and in such case, no income tax will be payable at final withdrawal of the NPS amount.

However, if a subscriber desires, he or she can continue the NPS account up to the age of 70.

Tier II Account:

The contribution in Tier II account has more flexibility in terms of withdrawal and it can be withdrawn at any time. However, no income tax deduction is allowed in its contribution. It is considered as savings of a subscriber and the amount can be transferred to Tier I account whenever required. In Tier II contribution, the subscriber can select different investment pattern i.e. choice than the Tier I account. For example, if in Tier I, he opted Auto Choice then here he may opt Active Choice. In Tier II, there is no minimum contribution required to be made and there is minor maintenance cost or exit load levied on the subscriber.

 Drawback of investing in NPS:

The major drawback of investing in NPS account is that there are no assured returns from the NPS account neither in case of Tier I account nor in case of Tier II account. The benefit of Tier II is that the amount can be withdrawn at any time but the drawback of this account is, no tax benefit is available on this account.

But instead of its drawbacks, the NPS has become a preferable investment by the citizens due to its tax benefits:

A.  The Subscriber' contribution under NPS (Tier I) is eligible and qualify for deduction u/s Sec. 80 CCD (1) & Sec. 80CCD (1B) of the Income-Tax Act, 1961. However; the deduction u/s 80CCD (1) is subject to the limit and conditions specified in Sec. 80CCD (1) read with Sec. 80CCE. 

And

The deduction under Sec. 80CCD (1B) is an additional deduction for amount paid in NPS up to Rs. 50000. However, the same amount cannot be claimed both under sub-section (1) and sub-section (1B) of section 80CCD.

B. The contribution made by the employer up to 10% of the salary qualifies for deduction u/s Sec. 80 CCD (2) of the Act. 

सरकारी कर्मचारियों के लिए बड़ी खुशखबरी! NPS को छोड़कर पुरानी Pension स्कीम का ले सकते हैं फायदा

NPS and Old Pension System: केंद्रीय कर्मचारियों (Central Government employees) की पेंशन को लेकर एक बड़ा ऐलान किया गया है. सरकारी कर्मचारी अब National Pension System (NPS) को छोड़कर पुरानी पेंशन स्‍कीम (OPS) का फायदा 31 मई 2021 तक ले सकते हैं.
डिपार्टमेंट ऑफ पेंशन एंड पेंशनर्स वेलफेयर (DoPPW) ने ये जानकारी एक नोटिफिकेशन के जरिए दी है. 

Old Pension Scheme के लिए 5 मई तक आवेदन 

सरकार ने कहा है कि जो भी कर्मचारी इसका फायदा लेना चाहते हैं 5 मई तक आवेदन कर सकते हैं. जो कर्मचारी आवेदन नहीं करेंगे उन्हें National Pension System का फायदा मिलता रहेगा. जो भी कर्मचारी 1 जनवरी 2004 से 28 अक्टूबर 2009 के बीच में नियुक्त किए गए हैं उनको CCS Pension के तहत ही पेंशन का लाभ मिलेगा.

पुरानी पेंशन योजना ज्यादा फायदेमंद!

इस फैसले पर एक्सपर्ट्स का कहना है कि पुरानी पेंशन स्कीम NPS से ज्यादा फायदेमंद है, क्योंकि पुरानी स्कीम में रिटायरमेंट के बाद पेंशनर्स के साथ ही परिवार वालों को भी सिक्योरिटी मिलती है. 

किन कर्मचारियों को मिलेगा योजना का फायदा

पुरानी पेंशन योजना का फायदा उन्हीं केंद्रीय कर्मचारियों को मिलेगा, जो रेलवे पेंशन रूल्‍स या CCS (पेंशन) रूल्‍स, 1972 के तहत राज्य सरकार के किसी विभाग या स्वायत्त संस्‍थाओं में 1 जनवरी, 2004 से पहले नियुक्‍त किए गए थे. इसके बाद अगर उन्होंने राज्य सरकार के पेंशनभोगी विभाग की नौकरी से इस्तीफा देकर केंद्र सरकार के पेंशनभोगी विभाग या केंद्रीय स्‍वायत्‍त संस्‍था में नियुक्ति हासिल की. 

क्या है NPS 

नेशनल पेंशन सिस्टम में 18 से 60 साल तक की उम्र के लोग इसमें निवेश कर सकते हैं. सभी सरकारी और निजी बैंकों में अकाउंट खोल सकते हैं. कर्मचारियों को सेक्शन 80CCD का सब सेक्शन 80CCD (1) के तहत पेंशन स्कीम में जमा पर टैक्स में छूट मिलती है.
सैलरीड कर्मचारी अपनी सैलरी का 10 परसेंट तक और नॉन सैलरीड कर्मचारी अपनी कुल इनकम का 20 परसेंट तक पेंशन अकाउंट में जमा कर सकते हैं. इस पर इन्हें 1.5 लाख रुपये तक टैक्स छूट मिलती है. 

*Copyright © 2018 Dr. Lalit Kumar. All rights reserved. 

You might also be interested in learning from the following:

1. How Money Grows in NPS   

2. Tax Deduction at Source for Deductors  

3. Tier I and II Accounts of NPS