The National Pension System (NPS) is a voluntary and long-term investment plan for retirement, offered by the Government of India. It is available to employees from the public, private, and unorganized sectors, except those in the armed forces.
NPS is open to all citizens of India, including both residents and Non-Resident Indians (NRIs), between the ages of 18 and 65. It is also available to corporate bodies and non-individual entities.
Individuals can contribute to their NPS accounts regularly during their working years. The scheme allows both voluntary contributions and contributions from employers. The contributions are invested in a mix of equity, fixed deposits, corporate bonds, liquid funds, and government funds, depending on the subscriber's choice.
Some of its main features include:
No Lock-in Period: There is no lock-in period on investments, providing flexibility to the investors.
Tier I and Tier II Accounts: NPS offers two types of accounts - Tier I and Tier II. While the Tier I account is mandatory to join NPS, the Tier II account is optional and offers more flexibility in terms of withdrawals.
Tax Benefits: NPS provides tax benefits under Section 80C and Section 80CCD of the Income Tax Act, making it an attractive investment option.
Flexible Withdrawal and Exit Rules: NPS allows for flexible withdrawal and exit rules, providing the subscribers with options to manage their retirement corpus.
Investment Options: Subscribers can choose from various asset classes such as equity, corporate bonds, government securities, and alternate assets to optimize returns according to their risk appetite.
Regulated and Economical: NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and is one of the lowest-cost investment products available.
Portability: NPS accounts remain the same irrespective of changes in employment, city, or state, providing portability to the subscribers.
Pension Fund Managers: Subscribers have the flexibility to choose from multiple Pension Fund Managers (PFMs) and investment options, allowing them to design their investment strategy based on their preferences.
These features make NPS an attractive retirement planning option for individuals, offering tax benefits, investment flexibility, and a well-regulated investment framework.
On reaching the age of 60, subscribers can exit from the scheme. At least 40% of the accumulated corpus must be utilized to purchase an annuity, which provides a regular pension to the subscriber. The remaining 60% can be withdrawn as a lump sum.
Currently, tax exemptions on NPS investments are exclusive to the old tax system, however, there are indications of an official announcement to include NPS benefits in the new tax structure during the forthcoming interim budget, 2024.
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