National Pension System (NPS) is a voluntary retirement savings scheme laid out to allow the subscribers to make a defined contribution towards planned savings thereby securing the future in the form of Pension.
Recently, the Pension Fund Regulatory and Development Authority (PFRDA) revised the rules for those joining it after 65 years of age. In a set of new rules, PFRDA has permitted them to allocate up to 50% of the funds in equity. It has also revised the guidelines on entry and exit following an increase in the maximum age for joining the NPS from 65 years to 70 years of age.
Who can open an NPS account?
A citizen of India, whether resident or non-resident, is subject to the following conditions:
Applicant should be between 18 – 65 years of age as of the date of submission of his/her application and should comply with KYC norms prescribed.
Who can open an NPS account after 65 years?
Any Indian citizen and Overseas Citizen of India (OCI) in the age group of 65-70 years can also join NPS and continue up to the age of 75 years, according to a PFRDA circular on the revised guidelines.
Benefits of NPS
NPS is considered to be the world’s lowest-cost pension scheme.
All applicant has to do is to open an account with any one of the POPs being run through all Head Posts Offices across India and get a Permanent Retirement Account Number(PRAN)
Applicant can choose his/her own investment option and Pension Fund or select the Auto choice to get better returns.
Applicant can operate an account from anywhere in the country and can pay contributions through any of the POP-SPs irrespective of the POP-SP branch with whom the applicant is registered, even if he/she changes his/her city, job etc and also make a contribution through eNPS. The account can be shifted to any other sector like Government Sector, Corporate Model in case the subscriber gets employment.
Tax benefit to employees
Individuals who are employed and contributing to NPS would enjoy tax benefits on their own contributions as well as their employer’s contribution as under
a) Employee’s own contribution – Eligible for tax deduction up to 10% of Salary (Basic + DA) under Section 80 CCD(1) within the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE.
b) Employer’s contribution – The employee is eligible for tax deduction up to 10% of Salary (Basic + DA) contributed by the employer under Sec 80 CCD(2) over and above the limit of Rs. 1.50 lakh provided under Sec 80 CCE.
According to the PFRDA circular dated 26 August 2021, subscribers joining the NPS after crossing the age of 65 years can exercise the choice of PF and Asset Allocation with the maximum equity exposure of 15% and 50% under Auto and Active Choice respectively.
New exit rules
Subscribers joining NPS beyond the age of 65 years can exit normally after 3 years.
How much you can withdraw?
As per the NPS rules, 60 per cent of the corpus can be withdrawn on retirement. No tax will be levied on this withdrawn amount. The subscriber is required to buy an annuity with the remaining 40 per cent of the corpus.
Recently, the Pension Fund Regulatory and Development Authority (PFRDA) allowed subscribers to withdraw the entire amount if the total value of their corpus is up to up to Rs 5 lakh.