WHAT IS NATIONAL PENSION SCHEME (NPS) ?
The National Pension Scheme is a social security initiative undertaken by the Pension Fund Regulatory and Development Authority (PFRDA) and Central Government which aims to provide post retirement benefits to the citizens of India.
The scheme encourages people to invest in a pension account at regular intervals during the course of their employment. After retirement, the NPS account holder can take out a certain percentage of the amount immediately and the remaining amount will be received as a monthly pension. This scheme is open to employees from the public, private and even the unorganised sectors except those from the armed forces.
LATEST CHANGES IN THE NPS
In the 2019 Budget, the government has announced several changes to the National Pension Scheme, which are listed below :-
- The administrative charges/expenses to be recovered @0.005% per annum of the Asset under Management (AUM) on daily accrual basis as approved by the NPS Trust.
- The income tax exemption limit has been raised from 40% to 60% on withdrawal from NPS corpus on retirement or after reaching the age of 60. This means that the NPS account holder can withdraw 60% of the amount on retirement and the balance 40% has to be invested in an annuity plan.
- Exemption of employer contribution up to 14% of the salary of central government employees has been allowed under Section 80CCD(2) of the Income Tax Act for the Central Government employees.
- Own contribution by central government employees to Tier II account qualify for income tax benefits under Section 80C, provided the money is locked in for a period of 3 years has been allowed by the government.
- More choices in terms of selecting fund managers to manage their NPS contributions are now available to the government sector NPS subscribers.
Thus, in a nutshell, the National Pension System (NPS) is a voluntary defined contribution pension system administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which aims to create a pensioned society in India.