During the tenure of employment, an individual will regularly receive a salary every month and hence it will be easy to meet both the ends. But post-retirement, the scenario will change as there will be no regular inflow of money to meet the requirements of retired people. To ease the lives of the people post-retirement, the government of India decided to roll out a scheme under the name National Pension System or NPS as it is popularly called.
What is the National Pension System?
As the name suggests, the National Pension System is a kind of voluntarily defined contribution pension system introduced by the Government of India.
The government decided to stop the defined benefit pensions offered to all its employees who joined after January 1, 2004. So, it chalked out a plan to roll out a pension scheme to benefit its employees who joined post-January 2004, so that they can voluntarily contribute towards the retirement scheme and build a corpus which comes in handy post-retirement.
Initially, the scheme was just limited to only government employees but later it was thrown open to all the citizens of India in 2009 and all those who are in the age group between 18 to 65 years can contribute towards this pension scheme.
The National Pension System is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
The contributions made towards the NPS of up to Rs 1,50,000 per annum, is eligible for deduction under Section 80C of the Income Tax Act if the lock-in period of three years is completed. The National Pension System falls under the EEE category which means exempt, exempt, exempt but to the extent of 60% only the remaining 40% has to be compulsorily used for purchasing an annuity and they will be taxable at the applicable tax slabs accordingly.
Income Tax benefits for NPS are available under following sections namely 80CCD (1), 80CCD 1(B) and 80CCD (2).
Beginning from the financial year 2016, an additional tax benefit of Rs 50,000 can be claimed under Section 80CCD1(B) which is in addition to the maximum limit of Rs 1,50,000 per annum claimed under Section 80C.
Let's understand the 4 Easy Steps to Follow and Join NPS.
Any applicant who prefers to join NPS should provide the following list of documents like personal information, bank details, residential address identification proof, election id card, aadhaar card, ID proof for know your customer (KYC) and so on.
All the relevant details and documents have to be attached with the application form.
Submission of Details and Documents
After duly filling in the relevant details and signing the form, the same must be submitted at the point of presence service provider (POPSP) office attached with supporting documents. After submission, the documents will be verified and processed further and a permanent retirement account number (PRAN) will be generated.
Later the PRAN will be sent to the subscriber's residential address (correspondence address).
Permanent Retirement Account Number (PRAN)
For any individual to invest in the national pension system having a permanent retirement account number is mandatory. Forms for PRAN application is available at point of presence service providers (POP-SP) or it can also be downloaded from the official web portal of the national pension system.
Contribution towards NPS
An applicant has to pay a minimum of Rs 500 to the point of presence service providers (POP-SP) at the time of submitting the duly filled in application form. A contribution slip (NCIS) must be filled in detailing the payment instrument particulars to accompany the payment.