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What You Should Know about NPS

October 01, 2021 Financial PlanningAditi Nundy
Many people now know about the National Pension System (NPS). Any Indian Citizen, aged between 18-70 can open an NPS account now. Earlier the ceiling was at the age of 65. Any Indian Citizen is allowed to open an NPS account, resident or non-resident (NRI). No joint holding concept exists in the NPS framework. There is no upper ceiling of money one can deposit in an NPS account. 

There are some facts many people miss out on.

Opt for the fund house of your choice 

At present, There are eight pension fund managers who manage the pension fund under NPS for the public. They are :

  • Aditya Birla Sun Life Pension Management Limited.
  • HDFC Pension Management Company Limited.
  • UTI Retirement Solutions Limited.
  • SBI Pension Funds Private Limited.
  • ICICI Prudential Pension Funds Management Company Limited.
  • Reliance Pension Fund.
  • Kotak Mahindra Pension Fund Limited.
  • LIC Pension Fund.
 
The investor can choose the pension fund manager of his choice and also change the fund manager once a year. However, only the following pension fund managers are allowed to manage pension fund contributions for the Government employees:

  • SBI Pension Fund
  • LIC Pension Fund 
  • UTI Retirement Solutions

Go for your preferred asset allocation

NPS fund is allowed to be invested in the below mentioned asset classes:

  • Government Securities
  • Corporate Debt
  • Equity shares (those who are allowed in derivatives trading, or the index stocks)
  • Alternative investment funds

If you are ready to design your own portfolio among the above asset classes, you can select the ‘active choice’ option. 

Otherwise, you can go for the ‘auto choice’ option and select a risk profile from any of:

  • Aggressive 
  • Moderate 
  • Conservative

This option is dynamic, where equity exposure reduces with age.

One can withdraw 100% of NPS funds (conditions apply)  

NPS is a social security scheme, designed for all citizens of India. To have greater financial inclusion in the pension system, it is required to attract every level of savings to the scheme. According to NPS rules, one can withdraw 60% from the NPS fund after 60 or the corresponding age of superannuation and draw a pension from the remaining 40% of the accumulated fund. As per the latest amendments, if the accumulated corpus of the fund is up to 5L, the subscriber can withdraw 100% as a lump sum.

If someone wishes to close the NPS account after completing 10 years and before the age of superannuation or 60, he can withdraw in a lump sum of up to 20% of the fund and the rest 80% must be transferred for pension. Again, if the accumulated corpus of the fund is up to 2.5L in case of premature closure, one can withdraw 100% as a lump sum.

  • Save tax up to 9.5L in a year

Anybody having a salary income can claim a very attractive tax deduction under NPS, if the CTC is designed accordingly. NPS specifically has many tax advantages for persons having high salaries, including directors of companies. One can claim all the following tax deductions by contributing to NPS:

  • Up to 1.5L per year u/s 80C
  • Up to 50K per year u/s 80CCD(1B)
  • Up to 7.5L per year u/s 80CCD(2) for employers’ contribution not exceeding 10% of salary (15% for government employees). This limit of 7.5L includes employers’ contribution towards provident fund, superannuation fund and NPS.

So, a salaried person can claim a tax deduction of up to 9.5L in a year only by contributing to NPS. If the standard deduction of 50K is added to this limit, the salaried individual can claim up to a deduction of 10L annually. 


If you have a question, share it in the comments below or DM us or call us - +91 9051052222.
We'll be happy to answer it. 

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Blog-Image_1.jpg

What You Should Know about NPS

October 01, 2021 Financial PlanningAditi Nundy
Many people now know about the National Pension System (NPS). Any Indian Citizen, aged between 18-70 can open an NPS account now. Earlier the ceiling was at the age of 65. Any Indian Citizen is allowed to open an NPS account, resident or non-resident (NRI). No joint holding concept exists in the NPS framework. There is no upper ceiling of money one can deposit in an NPS account. 

There are some facts many people miss out on.

Opt for the fund house of your choice 

At present, There are eight pension fund managers who manage the pension fund under NPS for the public. They are :

  • Aditya Birla Sun Life Pension Management Limited.
  • HDFC Pension Management Company Limited.
  • UTI Retirement Solutions Limited.
  • SBI Pension Funds Private Limited.
  • ICICI Prudential Pension Funds Management Company Limited.
  • Reliance Pension Fund.
  • Kotak Mahindra Pension Fund Limited.
  • LIC Pension Fund.
 
The investor can choose the pension fund manager of his choice and also change the fund manager once a year. However, only the following pension fund managers are allowed to manage pension fund contributions for the Government employees:

  • SBI Pension Fund
  • LIC Pension Fund 
  • UTI Retirement Solutions

Go for your preferred asset allocation

NPS fund is allowed to be invested in the below mentioned asset classes:

  • Government Securities
  • Corporate Debt
  • Equity shares (those who are allowed in derivatives trading, or the index stocks)
  • Alternative investment funds

If you are ready to design your own portfolio among the above asset classes, you can select the ‘active choice’ option. 

Otherwise, you can go for the ‘auto choice’ option and select a risk profile from any of:

  • Aggressive 
  • Moderate 
  • Conservative

This option is dynamic, where equity exposure reduces with age.

One can withdraw 100% of NPS funds (conditions apply)  

NPS is a social security scheme, designed for all citizens of India. To have greater financial inclusion in the pension system, it is required to attract every level of savings to the scheme. According to NPS rules, one can withdraw 60% from the NPS fund after 60 or the corresponding age of superannuation and draw a pension from the remaining 40% of the accumulated fund. As per the latest amendments, if the accumulated corpus of the fund is up to 5L, the subscriber can withdraw 100% as a lump sum.

If someone wishes to close the NPS account after completing 10 years and before the age of superannuation or 60, he can withdraw in a lump sum of up to 20% of the fund and the rest 80% must be transferred for pension. Again, if the accumulated corpus of the fund is up to 2.5L in case of premature closure, one can withdraw 100% as a lump sum.

  • Save tax up to 9.5L in a year

Anybody having a salary income can claim a very attractive tax deduction under NPS, if the CTC is designed accordingly. NPS specifically has many tax advantages for persons having high salaries, including directors of companies. One can claim all the following tax deductions by contributing to NPS:

  • Up to 1.5L per year u/s 80C
  • Up to 50K per year u/s 80CCD(1B)
  • Up to 7.5L per year u/s 80CCD(2) for employers’ contribution not exceeding 10% of salary (15% for government employees). This limit of 7.5L includes employers’ contribution towards provident fund, superannuation fund and NPS.

So, a salaried person can claim a tax deduction of up to 9.5L in a year only by contributing to NPS. If the standard deduction of 50K is added to this limit, the salaried individual can claim up to a deduction of 10L annually. 


If you have a question, share it in the comments below or DM us or call us - +91 9051052222.
We'll be happy to answer it. 

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