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NPS 1-Year Returns And Taxation Rules Explained


Owing to its spectacular returns in recent years, the National Pension System (NPS) is steadily emerging as a prominent option for investors. NPS is a government-launched pension cum savings scheme which is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). The PFRDA-established National Pension System Trust (NPST) is the approved operator of all NPS funds. During the employment period, a subscriber contributes occasionally and regularly to NPS to build a strong wealth for retirement. The corpus shall be made accessible to the subscriber upon retirement or at the timer of withdrawal from the scheme, with the provision that a portion of the scheme must be used to purchase an annuity in order to seek a monthly pension benefit.

NPS Returns

NPS Returns

In the past year, NPS schemes surpassed all pension fund managers because equity and debt schemes delivered double-digit returns. Tier-I and Tier-II accounts have generated incredible returns as per the NPS source. Over the last 1 year, Scheme E of NPS generated as high as 28.47 percent benchmark returns. Following the same Scheme E Tier - I UTI Retirement Solutions Ltd. have generated the highest 1 year returns with 28.13%, followed by HDFC Pension Fund with returns of 27.46% which comes second in the list. Under the Scheme G Tier I category HDFC Pension Fund again has generated the highest returns of 8.29% in the last 1 year, followed by SBI Pension Funds Pvt Ltd and Aditya Birla Sun Life Pension Management Ltd. with 1-year returns of 7.87% and 7.81%. In the past year, under Scheme C Tier I, which invests in corporate bonds, the LIC Pension Fund generated returns of 10.55 percent. To know more about returns in brief, please follow the below listed table. (Source: NPS Trust as on 18 Feb 21).

Scheme E Tier I
Pension Funds 1 Year Returns
Aditya Birla Sun Life Pension Management Ltd. 25.35%
HDFC Pension Management Co. Ltd. 27.46%
ICICI Pru. Pension Fund Mgmt Co. Ltd. 26.92%
Kotak Mahindra Pension Fund Ltd. 26.03%
LIC Pension Fund Ltd. 26.92%
SBI Pension Funds Pvt. Ltd 26.55%
UTI Retirement Solutions Ltd. 28.13%
Benchmark Return as on 18/02/2021 28.47%
Scheme C Tier I
Pension Funds 1 Year Returns
Aditya Birla Sun Life Pension Management Ltd. 9.44%
HDFC Pension Management Co. Ltd 10.40%
ICICI Pru.Pension Fund Management Co Ltd. 9.89%
Kotak Mahindra Pension Fund Ltd. 8.37%
LIC Pension Fund Ltd. 10.55%
SBI Pension Funds Pvt Ltd. 9.96%
UTI Retirement Solutions Ltd. 9.58%
Benchmark Return as on 18.02.2021 12.39%
Scheme G Tier I
Pension Funds 1 Year Returns
Aditya Birla Sun Life Pension Management Ltd. 7.81%
HDFC Pension Management Co. Ltd 8.29%
ICICI Pru.Pension Fund Management Co Ltd. 7.52%
Kotak Mahindra Pension Fund Ltd. 7.47%
LIC Pension Fund Ltd. 7.77%
SBI Pension Funds Pvt Ltd. 7.87%
UTI Retirement Solutions Ltd. 7.46%
Benchmark Return as on 18.02.2021 6.35%
NPS Taxation Rules

NPS Taxation Rules

Under NPS-for your contribution and for the employer's contribution, there is a tax benefit of up to Rs.1.5 lakh. The self-contribution, which is part of Section 80C, encompasses - 80CCD(1). Under 80CCD(1), the highest deduction one can claim is 10 percent of the salary, but not more than the stated amount. This cap is 20 percent under section 80CCD(2) of gross income for the self-employed individual against the contribution made by the employer towards NPS. The income tax act's section 80CCD covers the exemptions provided to the individuals under NPS. Until the year 2015, as per Section 80CCD, an individual was entitled to claim a tax exemption of up to Rs. 1 lakh against contributions made towards NPS. But this cap is raised by Rs 1.5 lakh in the budget 2015 by the government. In addition, a new sub-section 1B was also added, providing an additional exemption of up to Rs. 50,000 under section 80CCD(IB) for contributions made to the NPS by individual taxpayers.

Types of NPS accounts and related tax benefits

Types of NPS accounts and related tax benefits

Under NPS there are two types of accounts i.e. Tier I and Tier II account. Let's know the tax benefits under each account in brief:

NPS Tier I account

This account comes with a lock-in period until the age of 60 years is reached by the subscriber. Tier 1 contributions are tax-deductible and are eligible for deductions pursuant to Section 80CCD(1) and Section 80CCD (1B). This implies that in an NPS Tier 1 account you can contribute up to Rs. 2 lakh and claim a deduction of Rs. 1.50 lakh under Sec 80CCD(1) and Rs. 50,000 under Section 80CCD(1B).

NPS Tier II account

This is a voluntary savings account that comes with premature withdrawal benefit, The contribution made to the Tier 2 account, however, does not qualify for a tax deduction. You must first open a Tier 1 account to open a Tier 2 account. Contributions to NPS now qualify under the exempt-exempt-exempt (EEE) tax method, all of which are tax-exempt from the amount contributed to NPS, the income earned and the amount of maturity. You can withdraw up to 60 percent of the amount on maturity and the remaining 40 percent must be used to buy an annuity.

Key takeaways of NPS accounts

Key takeaways of NPS accounts

Below are some important points that you must consider regarding Section 80CCD(1B).

  • The Rs. 50,000/- additional deduction is only available for contributions made towards NPS Tier 1 accounts.
  • The exemptions are open to salaried individuals as well as to self-employed individuals under Section 80CCD(1B).
  • Under NPS, partial withdrawals are permitted but are relevant to particular provisions.
  • In the event that the assessee dies and the nominee wishes to close the NPS account, the income generated by the nominee will be exempted from taxation.
  • Only 25% of the contribution made is exempted from taxation if partial withdrawals are made from the account.
  • Only 40 percent of the overall amount is exempted from taxation if the assessee is an employee who opts to close the NPS account.
  • On hitting the age of 60 years, the assessee can withdraw 60 percent (tax-free amount) from the account. The remaining 40 percent (used to purchase annuity policy) is also free from taxation.
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