The National Pension System (NPS) is a voluntary, long-term retirement savings scheme launched by the Government of India. It is designed to provide retirement income to Indian citizens, including both salaried employees and self-employed individuals. NPS aims to encourage systematic and regular savings during an individual's working years, which can then be used to generate a steady income during their retirement years.
Key features of the National Pension System (NPS):
Contributions: Both the employee and the employer can contribute to the NPS account of salaried employees. For self-employed individuals, they can make contributions to their NPS account on their own.
Choice of Investment: NPS offers two investment options - Active Choice and Auto Choice. Under Active Choice, the subscriber can choose the allocation of their contributions across different asset classes, such as equities, corporate bonds, and government securities. Under Auto Choice, the investments are automatically diversified based on the age of the subscriber.
Tax Benefits: NPS offers tax benefits under Section 80C and Section 80CCD(1) of the Income Tax Act. The contributions made by the employee and the employer, up to a certain limit, are eligible for deduction from the taxable income. Additionally, an additional tax deduction is available under Section 80CCD(1B) for contributions up to a specified limit.
Portability: NPS is portable across jobs and locations. This means that if an individual changes jobs, they can continue their NPS account or transfer it to another Pension Fund Manager (PFM).
Withdrawals: On retirement, the subscriber can withdraw a part of the accumulated corpus as a lump sum, and the remaining amount must be used to purchase an annuity plan, which provides regular pension payments.
Regulated by PFRDA: The National Pension System is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which ensures the integrity and transparency of the scheme.
NPS is considered a cost-effective and tax-efficient retirement savings option, providing individuals with the opportunity to build a substantial corpus for their retirement years. However, it's essential for individuals to carefully consider their financial goals, risk appetite, and investment preferences before enrolling in the NPS and making investment choices within the scheme.