What is the NPS scheme? These are the features and benefits of it

The National Pension System (NPS) is a retirement benefits scheme established by the Government of India to provide all subscribers except those who work in the Armed Forces, with a regular income after retirement. The PFRDA (Pension Fund Regulatory and Development Authority) governs the NPS. The following are the features and benefits of NPS.

What is NPS?
Subscribers to the NPS scheme can make a minimum contribution of Rs.6,000 in a fiscal year, which can be paid as a lump sum or as monthly installments of Rs.500. The NPS scheme invests subscribers' contributions in market-linked instruments such as debt and equity, and the returns are determined by the performance of these investments. The current NPS interest rate on gifts is 8-10%.

Any Indian citizen between the ages of 18 and 60 can open a National Pension Scheme account. The National Pension Scheme matures at the age of 60, but it can be extended to the age of 70. After three years of opening the account, subscribers can make partial withdrawals of up to 25% of the contribution for specific reasons such as purchasing a home, sponsoring a child's education, or treating critical illnesses.

Important features and advantages

1. Regulated: NPS is regulated by PFRDA (Pension Fund Regulatory Authority under the Ministry of Finance, Government of India), which ensures that the activities are governed by transparent norms. NPS Trust monitors compliance with the guidelines on a regular basis.

2. Voluntary: It is a voluntary scheme open to all Indian citizens. You can put money into your NPS account at any time.

3. Flexibility: You can choose or change your POP (Point of Presence), investment pattern, and fund manager. This ensures you can optimise returns based on your comfort level with various asset classes and fund managers (equity, corporate bonds, government securities, and alternative assets).

4. Cost-effective: NPS is one of the most cost-effective investment products available.

5. Portability: The NPS account or PRAN will remain the same regardless of employment, city, or state changes.

6. Transfer of superannuation funds: NPS account holders can transfer their Superannuation funds to their NPS account without incurring any tax consequences. (After receiving approval from the appropriate authorities)

7. Tax benefits: NPS provides tax advantages, which are as follows:

1. Tax benefits for salaried individuals

Section 80CCD allows you to claim a tax exemption of up to Rs. 50,000. (1B). This benefit exceeds the Rs. 1,50,000 limit under Section 80C.

You can invest up to 10% of your basic salary + dearness allowance and claim a tax break on the amount invested under Section 80CCD (1). Section 80C of the Income Tax Act of 1961 limits this tax exemption to Rs. 1,50,000.

2. Tax benefits for self-employed people

Section 80CCD allows you to claim a tax exemption of up to Rs. 50,000. (1B). This benefit exceeds the Rs. 1,50,000 limit under Section 80C.

Section 80CCD allows you to invest up to 20% of your gross annual income and claim a tax deduction on the amount invested (1). Section 80C of the Income Tax Act of 1961 limits this tax exemption to Rs. 1,50,000.

An NPS is a completely government-backed scheme, and anyone who wants to plan their early retirement without taking high risks should unquestionably consider it.