NPS Assets Investment Crosses Rs 1 Lakh Crore Mark
The National Pension System (NPS) is a voluntary defined contribution plan for retirement income. Individuals aged between 18 and 60 years can open a Tier I and Tier II account. They need to contribute a minimum amount of INR 6,000 per annum to the Tier I NPS account.
The contribution is invested among different asset classes, such as government bonds, corporate bonds, and equities. Contributors can indicate their investment choice to maximize their returns on investments.
Although the NPS was launched in 2009, it did not gain much popularity initially. Individuals shied away from investing in the NPS because of its complexity and a general lack of clarity related to their contributions.
However, in the previous year’s Budget, Finance Minister Arun Jaitley took a huge step towards increasing the popularity of this tax saving investments plan. He made contributions of up to INR 50,000 tax deductible under the section 80 CCD (1B) of the Income Tax Act. This deduction was over and above the existing benefit available for investments up to INR 1.5 lakhs under the section 80 CCE. This offers individuals a total tax deduction benefit of INR 2 lakhs under sections 80 CCD (1) and 80 CCD (1B).
As a result, an increased number of investors started investing in the National Pension System. Assets under management for the NPS crossed INR 1 lakh crores for the first time since the launch of this tax saving scheme.
Working of the NPS
Individual subscribers
They can open their NPS accounts with any of the “Point of Presence (POP)” appointed by the regulatory authority, Pension Fund Regulatory and Development Authority (PFRDA). They need to fill and submit the Common Subscriber Registration Form (CRSF) to the POP along with KYC documents and initial contribution. On successfully opening an account, users receive a Welcome Kit comprising the Permanent Retirement Account Number (PRAN) card and other related documentation. The PRAN is unique for each subscriber and portable, giving you flexibility even if you change your job or location.
Tier I is the pension account while Tier II is the investment account. Withdrawals from Tier I accounts are limited and help to create the retirement corpus. Tier II is a voluntary investment facility and the amounts from this account can be withdrawn without any limitations.
Corporate subscribers
The corporate model for this tax saving scheme was made available from December 2011. It was customized to suit the requirements of different companies and employees. The NPS is an option offered for providing additional retirement benefits to the personnel, and can be made mandatory by the companies for their employees.
Companies can join this tax saving investments scheme through the POP. Employers who contribute to this pension plan on behalf of their employees also receive tax advantages, which make it attractive for them. Companies can claim such benefits for an amount that is up to 10% of the employees’ salaries (basic + dearness allowance) through deduction as business expenses.
