NPS (National Pension Scheme)

NPS is an easy-to-use, low cost, tax-efficient, flexible and portable retirement savings account. This defined contribution based pension scheme is a Government of India initiative to provide old age security and pension requirement to all citizens of India. The NPS was rolled out for Indian Citizens on May 01, 2009.

The person (employee/citizen) who joins the NPS will be known as ‘Subscriber’ in the NPS. Under the NPS, each subscriber will open an account with Central Recordkeeping Agency (CRA) which will be identified through unique Permanent Retirement Account Number (PRAN).

There are two types of NPS accounts to Subscribers :

• Tier I Account: This is known as pension account and is mandatory to open.Tax benefit on Investment amount is available only in this Account
• Tier II Account: Opening of this account is optional for investment purpose. The subscriber has the flexibility to can withdraw from this account as per their requirements

Tier II account can be opened along with Tier I account or at a later point of time.

• A citizen of India including NRI.
• Age between 18 years and 65 years at the time of submission of application
• Complied with KYC (Know Your Customers) norms
• As per NPS rules, OCI and PIO card holders are not eligible

Yes, an NRI can also join NPS. NRIs are requested to get in touch with CAGRfunds for further details.

In our view, the following people should definitely invest in NPS:

1. People currently in tax bracket of 20% and above
2. People who would want to inculcate a long term savings solely for retirement

Contribution Requirement for NPS Accounts:

A subscriber can withdraw a maximum 60% as lump sum. The remaining 40% of the corpus will have to be annuitized. You may choose to purchase an annuity for an amount greater than 40% of the corpus. (One can also annuitize 100% of the corpus). However, if the Corpus at the time of exit from NPS at the age of 60 years is less than 2 lakhs, Subscriber has the option to withdraw the entire amount in lump sum.

In case of exit from NPS on attainment of the age 60, subscriber can defer the withdrawal option till 10 years. That means, if at the time of exit from NPS (on attaining the age 60), can let the amount remain in NPS account and he can opt for withdrawal at any point of time before he attains the age 70 years. However, in case of pre – mature exit from NPS (before attaining the age of 60 years), Subscriber does not have option to defer the option.

• At the time of investment: You can save additional tax by investing Rs. 50,000/- in an year under sec 80 CCD(1B) over and above the Rs. 1.5 Lakh limit under sec 80 C.
• At the time of withdrawal: Currently, the NPS corpus is only partially taxed. While 40 percent of the corpus on maturity is tax-exempt, the balance is taxable. The annuity is fully taxable in the year of receipt as 'Income from other sources'.

Historically, NPS has been giving 9-11% annual returns for the last 5 years (for 50% equity allocation). However, historical returns should not be extrapolated to the future.