Everything You Need to Know About NPS - Part 2
Details of National Pension Scheme (NPS)
NPS (National Pension System) is a defined contribution based Pension Scheme launched by Government of India .
It is applicable to Bank Employees who joined Banking industry on or after 01.04.2010.
It is based on a unique Permanent Retirement Account Number (PRAN) which is allotted to each Subscriber upon joining NPS.
PFRDA has now launched a separate model to provide NPS to the employees of corporate entities, including PSUs (including Banks). This model is titled "NPS - Corporate Sector Model".
PFRDA has now launched a separate model to provide NPS to the employees of corporate entities, including PSUs (including Banks). This model is titled "NPS - Corporate Sector Model".
On successful registration, a PRAN (Permanent Retirement Account Number) will be allotted to the subscriber. A PRAN Kit containing PRAN card, Subscriber details (referred as Subscriber Master List) and an information booklet is sent to the subscriber's registered address. The T-Pin and I-Pin are sent separately to the registered address. In case of the Corporate Sector subscriber, the PRAN Kit alongwith T-PIN & I-PIN will either be sent to the subscriber's registered address or at the Corproate Head Office as per the option selected by the Corporate.
The PRAN Card is a document with PRAN, subscriber's name, father's name, photograph and signature/thumb impression.
NPS Account Information:
The NPS Scheme offers 2 types of account
- Tier I account – it is also known as Pension Account. Withdrawal from this account is restricted till the Subscriber attains the age 60 years. Minimum yearly contribution requirement in this account is Rs.6000.
- Tier II account – it is a normal investment account. Withdrawal from this account can be done as per the need of the Subscriber. Minimum yearly contribution requirement in this account is Rs.250 however on 31st March of each year total value of units in this account should be equal to or more than Rs.2000
An active Tier I account is mandatory for opening Tier II account. Tier II account can be opened along with Tier I account or at any time after Tier I account opening.
Fund options:
NPS gives Subscribers option to invest according to their choice and risk appetite among three funds. Three funds under NPS are
- Equity (Asset Class E)
- Corporate Bonds (Asset Class C)
- Government Securities (Asset Class G)
Subscriber can switch the asset allocation once in a financial year.
Investment Options:
Depending on the expertise on taking call on right asset mix, Subscribers have 2 investment options under NPS
- Active Choice – Under this option, subscriber can select the asset allocation among Equity, Corporate Bonds and Government Securities as per his / her choice.
- Auto Choice – Under this option, fraction of funds invested across three asset classes is determined by a pre – defined portfolio which will be based on the age of the Subscriber. This is also known as Life Cycle Fund option.
§ Employer contributing to the NPS on behalf of an employee will get deduction from his income (i.e. employer's income) an amount equivalent to the amount contributed or 10% of BASIC SALARY + DA of the employee, whichever is less. (Section 36 (1) (iv a) of the Income Tax Act 1961).
§ Employer's contribution to NPS on behalf of the employee is treated as perquisite in the hands of the employees, but is deductible u/s 80CCD (2) of the Income tax Act, 1961 to the extent of 10% of basic salary. This deduction is over and above the limit of Rs.1.5 lac u/s 80 CCD (1). This will lessen the tax burden of the employee to the extent of amount deductible u/s80CCD (2) of the Income tax Act, 1961.
§ Contribution by individual employee is eligible for a deduction from Income under Section 80CCD (1) of the Income Tax Act 1961 upto Rs 1.5 Lakhs. However, investments under Section 80C Section 80CCC and 80CCD(1) should not exceed Rs.1.5 lakhs per assessment year to claim for the deduction.
§ An additional exclusive tax benefit of Rs.50,000/- under section 80CCD (1B) per assessment year (applicable from FY 2015-16/AY 2016-17) for NPS investments.
Withdrawal from Tier I NPS account:
Withdrawal before the age 60 years
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1. Up to 25% of Employee’s contribution Corpus can be withdrawn in lump sum.
Three times before 60 years of age
(but after 10 years of contribution) for the purpose of 1. construction of House property, 2. marriage/education of children, 3. medical treatment. (G.O. issued dated 11.05.2015) |
Withdrawal on attaining the age 60 years
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1. Up to 60% of Corpus can be withdrawn in lump sum
2. Minimum 40% of the Corpus needs to be invested in Annuity
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Subscriber can opt for any of the following options to receive pension by way of purchasing annuity
Annuity Schemes:
After retirement ,Depending on the need, Subscriber can select any of the below mentioned annuity plan (i.e. monthly payment of a fixed amount) offered by Annuity Service Providers registered with PFRDA
- Annuity payable for life at a uniform rate to the annuitant only
- Annuity payable for 5, 10, 15 or 20 years certain and thereafter as long as you is alive
- Annuity for life with return of purchase price on death of the annuitant (Policyholder)
- Annuity payable for life increasing at a simple rate of 3% p.a
- Annuity for life with a provision of 50% of the annuity payable to spouse during his/her lifetime on death of the annuitant.
Steps to be followed to check NPS Balance:
First we have to visit " https://cra-nsdl.com/CRA/ "website which is the official website of Central Record Keeping Agency and of National Securities Depository Limited.
You can get Balance, growth, statement of accounts etc., from the above website.
Every month you will be getting SMS about the amount credited to your NPS account.
However, if SOT (Statment of Transanction) is required in soft copy, the subscriber can give a request through CRA toll free number 1800-222-080 using TPIN. SOT for last three financial years can be requested. The SOT will be sent through email in the email id registered with CRA. This is not a chargeable service.
Alternatively, by login to CRA system using IPIN, the subscriber can print his/her SOT (available for the last three years).
Past Performance of Pension Funds on Return % as on 29.05.2015 as per NSDL site :
Particulars
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SBIPF
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LICPF
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UTIRSL
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ICICI PF
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RELIANCE P
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KOTAK PF
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HDFC PF
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Scheme E: Equity
3 Years
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20.87%
|
NA
|
21.03%
|
21.89%
|
20.92%
|
20.82%
|
NA
| ||
Since Inception
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10.15%
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20.98%
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12.67%
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13.21%
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12.01%
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11.46%
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26.14%
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Scheme C: Corporate Bonds
3 Years
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11.23%
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NA
|
11.05%
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11.87%
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11.60%
|
11.55%
|
NA
| |
Since Inception
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11.35%
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12.76%
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9.59%
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11.20%
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9.29%
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11.00%
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12.65%
|
Scheme G: Government Securities
3 Years
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10.60%
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NA
|
10.34%
|
10.72%
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10.32%
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10.44%
|
NA
| |
Since Inception
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9.96%
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13.93%
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8.42%
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8.71%
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8.07%
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8.41%
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12.26%
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Expected Modification:
1.The Union Cabinet recently passed a Bill that seeks to ask pension fund managers to offer minimum assured return options to investors. This will come into force only after Parliament passes the PFRDA Bill.
2.The most key concern is the lack of clarity on taxation at withdrawal. Present laws say the funds will be taxed at withdrawal.
Under the existing laws, up to 60 per cent corpus on maturity can be withdrawn while at least 40 per cent has to be used to buy annuity. At present, returns from annuity insurance plans are not tax-free.
The proposed Direct Taxes Code (DTC) seeks to exempt NPS funds from tax at withdrawal. However, it is not clear if the DTC provides for tax exemption on returns from annuity plans as well.
Under the existing laws, up to 60 per cent corpus on maturity can be withdrawn while at least 40 per cent has to be used to buy annuity. At present, returns from annuity insurance plans are not tax-free.
The proposed Direct Taxes Code (DTC) seeks to exempt NPS funds from tax at withdrawal. However, it is not clear if the DTC provides for tax exemption on returns from annuity plans as well.
What Unions are expected to do?
1. Total reversal from NPS scheme to old Pension Scheme.
Unions in Central and State Govt., have raised this issue after about ten years and are on the path of struggle.
In my view it is practically not possible to go back to old scheme after ten years.
Moreover it is a policy decision of Govt.s of both Congress and B.J.P.
Unions in Central and State Govt., have raised this issue after about ten years and are on the path of struggle.
In my view it is practically not possible to go back to old scheme after ten years.
Moreover it is a policy decision of Govt.s of both Congress and B.J.P.
2. Then what is the next step?
Unions can demand the following and take the struggle towards this direction without wasting no more time.
a) Demand “Govt.,/Pension Fund guarantee” of Minimum return on investment.
b) Remove taxing the returns (appreciation over investment) and pension (annuity)
on maturity/withdrawal.
c) Allow withdrawal before age of 60 for the purpose meeting vital requirements of an employee (This issue is solved recently. G.O. dt.11.05.2015)
Those who want to know more please visit
https://npscra.nsdl.co.in/organised-sector.php
b) Remove taxing the returns (appreciation over investment) and pension (annuity)
on maturity/withdrawal.
c) Allow withdrawal before age of 60 for the purpose meeting vital requirements of an employee (This issue is solved recently. G.O. dt.11.05.2015)
Those who want to know more please visit
https://npscra.nsdl.co.in/organised-sector.php
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