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NPS

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What is NPS ( National Pension System )?

National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable subscribers to make optimum decisions regarding their future through systematic savings during their working life.

Under the NPS, individual savings are pooled into a pension fund which is invested by PFRDA-regulated professional fund managers into diversified portfolios comprising of government bonds, bills, corporate debentures, and shares. These contributions grow and accumulate over the years, depending on the returns earned on the investment made.

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Features & Benefits of NPS:

  • A safe retirement fund: Introduced by the Government of India and regulated by the Pension Fund Regulatory & Development Authority (PFRDA).

  • Simple: Opening an account with NPS provides a Permanent Retirement Account Number (PRAN), which is a unique number that remains with the subscriber throughout his lifetime.

  • Portable: NPS provides seamless portability across jobs and locations, unlike all current pension plans, including that of the EPFO. It would provide a hassle-free arrangement for individual subscribers.

  • Flexible: NPS offers a range of investment options and choices of Pension Fund Managers (PFMs) for planning the growth of your investments. Individuals can switch over from one investment option to another or from one fund manager to another subject to conditions.

Who can Join NPS?

  • Citizen of India; Resident or Non-Resident,

  • Age between 18-65 years, as of the date of joining,

  • Salaried or Self Employed.

Tax benefits for Individuals (All Citizen Model)

  • A self-employed individual is eligible for a tax deduction of up to 20% of Gross Income under section 80CCD (1) of the Income Tax Act, 1961 within the Rs.1.5 Lacs limit under section 80CCE.

  • An additional investment of Rs.50,000 will be eligible for tax deduction under section 80CCD (1B) of the Income Tax Act, 1961. This is over and above Rs. 1.5 lacs limit under section 80CCE.

Tax benefits for Salaried Individuals (Corporate Model):

A contribution made by Employee: A salaried individual is eligible for a tax deduction of up to 10% of Salary (Basic + Dearness Allowance) under section 80CCD (1) of the Income Tax Act, 1961 within Rs.1.5 Lacs limit under section 80CCE. An additional investment of Rs.50,000 will be eligible for tax deduction under section 80CCD (1B) of the Income Tax Act, 1961. This is over and above Rs. 1.5 lacs limit under section 80CCE.

A contribution made by Employer: The employee is eligible to claim a tax deduction on the employer’s contribution up to 10% of salary (Basic + Dearness Allowance) under section 80CCD(2) of IT Act. This is over and above of Rs. 1.50 lac limit available under section 80CCE. There is no upper cap in terms of absolute value on employer contribution.

Tax benefits for Corporate: Corporate can claim tax benefits for the amount contributed towards the pension of employees. Up to 10% of the salary (basic and dearness allowance) of employers' contribution can be deducted as ‘Business Expense’ from the Corporates Profit & Loss Account as per section 36(1)(iv)(a) of the IT Act.

Types of Accounts: Under NPS account there are two types of accounts – Tier I & Tier II.

Tier I is the Individual Pension Account, which is the default pension account having all the tax incentives under the Income Tax Act.

Tier-II is an optional investment account available to a subscriber having an active Tier-I account. This account has no withdrawal restrictions and tax benefits. Tier II is not a Pension Account.

 

Tier – I Tier – II
Individual Pension Account Optional Account – Require an active Tier-I
Withdrawal as per rules/regulations only Unrestricted withdrawals
Min. Contribution to open Rs. 500 Min. Contribution to open Rs. 1000
Min. Contribution per year Rs. 1000 Min. Contribution Rs. 250
Tax benefits are available No tax benefits on contributions/gains

How to Invest in The National Pension Scheme(NPS) 2021Image result for Retirement Pension

Contribution: 

A subscriber can make any number of contributions to his/her Tier-I or Tier-II account without any upper limit of amount through any of the following modes:

i. Physical mode – by visiting any of the registered service providers (PoP) and depositing cheques/cash along with the NPS contribution slip.

Cheque name accepted only  "Religare Broking Ltd Collection A/c NPS- NPS Trust”

ii. Online mode -

 a.   Web-based [(i) log in to Pension Account (ii) online facility provided by PoPs (iii) eNPS platform of NPS Trust]

b.   NPS Mobile Application login

The contributions made by the subscriber will get invested as per the subscriber's choice (Pension Fund and Asset allocation) exercised and recorded with CRA.

Investment choices:

The NPS contributions made by a subscriber will get invested as per the subscriber choices (Pension Fund and Asset allocation) exercised and recorded with CRA.

The following choices are available to the subscribers:

 (A) Selection of Pension Funds: