NPS

What are the types of funds available in NPS ?

There are three types of NPS funds available. They are as below.

• Asset Class E

• Invest in equity market instruments. This is the riskier asset class among all three.

• Asset Class G

• Invest in fixed income instruments. The best example of this is central government bond. This is the secured among all three.

• Third Party Policy

• Invest in fixed income instruments. Examples of these are bonds issued by firms or companies. this neither risky like Asset Class E nor safe like Asset Class G.

Recently a new fund category by name Alternate investment has been introduced.

Some of the benefits of the National Pension System (NPS) are

• It is transparent

• NPS is transparent and cost effective system wherein the pension contributions are invested in the pension fund schemes and the employee will be able to know the value of the investment on day to day basis.

• It is simple

• All the subscriber has to do, is to open an account with his/her nodal office and get a Permanent Retirement Account Number (PRAN).

• It is portable

• Each employee is identified by a unique number and has a separate PRAN which is portable i.e., will remain same even if an employee gets transferred to any other office.

• It is regulated

• NPS is regulated by Pension Fund Regulatory and Development Authority- External website that opens in a new window, with transparent investment norms & regular monitoring and performance review of fund managers by NPS Trust- External website that opens in a new window.

• Tax Benefit

• • Under New Pension Scheme, an investor can claim tax benefit under Sections 80CCD(1), 80CCD(2), and 80CCD(1B) , not exceeding 10% of basic salary + DA. This is applicable only to Tier I accounts.
  • Under 80CCE, investors can claim tax benefits on their employer’s contribution to NPS, not exceeding 10% of basic + DA.
  • Companies too can claim tax exemptions in their P&L statement.
  • Tier II accounts like mutual funds.

1. What are the tax benefits under NPS ?

Tax Benefit available to Individual

Any individual who is Subscriber of NPS can claim tax deduction up to 10% of gross income under Sec 80 CCD (1) with in the overall ceiling of Rs. 1.5 lac under Sec 80 CCE.

Exclusive Tax Benefit to all NPS Subscribers u/s 80CCD (1B)

An additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs. 1.5 lakh available under section 80C of Income Tax Act. 1961.

Tax Benefits under the Corporate Sector

Corporate Subscriber

Additional Tax Benefit is available to Subscribers under Corporate Sector, u/s 80CCD (2) of Income Tax Act. Employer’s NPS contribution (for the benefit of employee) up to 10% of salary (Basic + DA), is deductible from taxable income, without any monetary limit.

Corporates

Employer’s Contribution towards NPS up to 10% of salary (Basic + DA) can be deducted as ‘Business Expense’ from their Profit & Loss Account.

How to make the Investment to avail the Tax Benefit

If you are an existing Subscriber, you can approach any POP-SP or alternatively you can visit eNPS website (https://enps.nsdl.com) for making additional contribution in your Tier I account.
Please note: Tax benefits are applicable for investments in Tier I account only.

2. What will be the investment proof to avail the tax benefit under NPS ?

The Subscriber can submit the Transaction Statement as an investment proof. Alternatively, Subscriber from “All Citizens of India” can also download the receipt of voluntary contribution made in Tier I account for the required financial year from NPS account log-in. It can be downloaded from the sub menu “Statement of Voluntary Contribution under National Pension System (NPS)” available under main menu “View” in NPS account log-in.

3. What are other tax benefits under NPS apart from available u/s 80CCD ?

Apart from tax benefits available under 80CCD, below are the other tax benefits available under NPS:
Tax benefits on partial withdrawal:

Subscriber can partially withdraw from NPS tier I account before the age of 60 for specified purposes. According to Budget 2017, amount withdrawn up to 25 per cent of Subscriber contribution is exempt from tax.
Tax benefit on Annuity purchase:

Amount invested in purchase of Annuity, is fully exempt from tax. However, annuity income that you receive in the subsequent years will be subject to income tax.
Tax benefit on lump sum withdrawal:

After Subscriber attain the age of 60, up to 40 percent of the total corpus withdrawn in lump sum is exempt from tax.

For example
If total corpus at the age of 60 is 10 lakhs, then 40% of the total corpus ie 4 lakhs, you can withdraw without paying any tax. So, if you use 40% of NPS corpus for lump sum withdrawal and remaining 60% for annuity purchase at the time of retirement, you do not pay any tax at that time. Only the annuity income that you receive in the subsequent years will be subject to income tax..

4. What are the tax benefits on investments under Tier II account ?

There is no tax benefit on investment towards Tier II NPS Account.