The National Pension System (NPS) is a voluntary defined contribution pension system administered and regulated by Pension Fund Regulatory and Development Authority (PFRDA) created by an Act of Parliament of India. The NPS started with the decision of Government of India to stop defined benefit pensions for all its employees who joined after 1st Jan 2004. While the scheme was initially designed for government employees only, it was opened up for all citizens of India in 2009. NPS is an attempt by the government to create a pensioned society in India.
Who can join NPS
A citizen of India, whether resident or non-resident can join NPS, subject to the following conditions:
1. The subscriber should have age between 18 – 60 years as on the date of submission of his/her application to the Point of Presence (POP) / Point of Presence–Service Provider -Authorized branches of POP for NPS (POP-SP).
2. The subscribers should comply with the Know Your Customer (KYC) norms as detailed in the Subscriber Registration Form.
Withdrawals from NPS
Prior to age 60
NPS restricts withdrawals before the age of 60. As per latest regulations subscribers can make withdrawals from the scheme only after 10 years, only 3 times during the entire duration and at no point in time will withdrawals exceed the sum total of contributions made by the subscriber. The contribution made by the employer, on behalf of their employees, will not be counted as subscriber’s contribution. In effect NPS, being a pension scheme actively discourages withdrawals of any kind.
Post age 60
At age 60, minimum 40% of the accumulated corpus has to be used to purchase an annuity. The subscriber can withdraw up to 40% of accumulated corpus tax-free. Rest 20% can be withdrawn lump sum and the amount will be considered taxable. Alternatively, the subscriber can withdraw this 20% over a period of 10 years. The intent is to encourage subscribers to defer their withdrawals.
Till recently the age of 60 was fixed as NPS account termination date. However recently the PFRDA has made changes to NPS whereby subscribers can , if they choose to, defer their age for withdrawal from 60 to anytime before age 70. This has been done in response to increasing trend of people continuing to work beyond the age of 60.
Tax Benefits for NPS
NPS qualifies for tax benefits under three different sections of Indian tax laws
Section 80C up to Rs. 150,000
Section 80CCD(1) up to Rs 50,000
Section 80CCD(2) up to 10% of basic salary contributed by the employer.
All these tax breaks are independent of each other and can be availed simultaneously.