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Tags: GS Mains Paper 3, Indian Economy, Growth and Development.  
GS Prelims Paper 1, Indian Economy 

About 
•    The National Pension System (NPS) is a voluntary defined contribution pension system in India. 
•    It is administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA). 
•    The NPS started with the decision of the Government of India to stop defined benefit pensions for all its employees who joined after 1 January 2004. While the scheme was initially designed for government employees only, it was opened up for all all citizens of India between the age of 18 and 65 in 2009, it was opened up for, for OCI card holders and PIO's in October 2019. 
•    On 10 December 2018, the Government of India made NPS an entirely tax-free instrument in India where the entire corpus escapes tax at maturity; the 40% annuity also became tax-free. The contribution under Tier-II of NPS is covered under Section 80C for deduction up to Rs. 1.50 lakh for income tax benefits, provided there is a lock-in period of three years. 

Eligibility 
•    A citizen of India, whether resident or non-resident and Overseas citizenship of India.
•    Between 18 – 65 years of age as on the date of submission of his/her application to the POP/ POP-SP are eligible to open the account under the scheme subject to the following conditions:
•    The subscribers joining the NPS after the age of 60 would be eligible to continue in system up to age of 70 years and during this period the subscriber may continue to contribute.
•    The subscribers joining NPS beyond 60 years will have the same choice of the Pension Fund as well as the investment choice as is available under the NPS for subscribers joining before 60 years.

Types of accounts
•    Two types of accounts can be opened under NPS. They are:

Tier-I account
•    The applicant shall contribute his/her savings for retirement into this non-withdrawal account. This is the retirement account and applicant can claim tax benefits against the contributions made subject to the Income Tax rules in force.

Tier-II account
•    This is a voluntary savings facility. The applicant will be free to withdraw his/her savings from this account whenever he/she wishes. This is a not a retirement account and applicant can’t claim any tax benefits against contributions to this account.

Important features of NPS:
•    Access and Portability is ensured through online access of the pension account to the NPS subscribers through web portal and mobile app, across all geographical locations and portability of employments.
•    Partial withdrawal- Subscribers can withdraw up to 25% of their own contributions at any time before exit from NPS Tier-I for a maximum of three times during the entire tenure of subscription under NPS for certain purposes specified in the regulations. The partial withdrawals are allowed from NPS Tier-1 after contributing for at least ten years and there should be a gap of minimum five years between successive withdrawals.
•    Tax Benefits available under NPS - Employee’s own Contribution towards NPS Tier-I is eligible for tax deduction under section 80 CCD (1) of the Income Tax Act within the overall ceiling of Rs. 1.50 lakh under section 80 C of the Income Tax Act. From FY 2015-16, the subscriber is also allowed tax deduction in addition to the deduction allowed under section 80CCD(1) for contribution to NPS Tier I account subject to a maximum of Rs. 50,000 under section 80CCD 1(B ). Employer’s contribution towards NPS Tier-I is eligible for tax deduction under Section 80CCD (2) of the Income Tax Act (14% of salary for central government employees and 10% for others). This rebate is over and above the limit prescribed under Section 80C.

Benefits of NSP
•    It is transparent - NPS is transparent and cost effective system wherein the pension contributions are invested in the pension fund schemes and the employee will be able to know the value of the investment on day to day basis.
•    It is simple - All the subscriber has to do, is to open an account with his/her nodal office and get a Permanent Retirement Account Number (PRAN).
•    It is portable - Each employee is identified by a unique number and has a separate PRAN which is portable i.e., will remain same even if an employee gets transferred to any other office.
•    It is regulated - NPS is regulated by Pension Fund Regulatory and Development Authority- External website that opens in a new window, with transparent investment norms & regular monitoring and performance review of fund managers by NPS Trust- External website that opens in a new window.

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