Retirement is one of the most important phases in every person’s life. The government, keeping in mind the need for issues in old age has launched a pension system to encourage people to save towards their retirement. The NPS or National Pension System is a voluntary retirement scheme through which you can create a retirement corpus or your old-age pension. It’s managed by PFRDA (Pension Fund Regulatory and Development Authority) and available to all Indian citizens (resident or non-resident) between 18 and 65 years old. One can join the NPS as late as when they are 60 years old and continue to contribute until they are 70 years old.
NPS account types –
NPS account consists of two tiers- Tier I and Tier II. The Tier I account is the retirement account and comes with a host of tax benefits, but you cannot withdraw your contributions till you reach the age of 60. The Tier II account has no restrictions, and you can take out money anytime you want.
How to invest in NPS –
Investing in NPS starts from the minimal amount of 500 Rs under the Tier I account and Rs 1,000 for Tier II at the time of registration. Subsequent contributions, as well as frequency, could vary, but one needs to make an annual minimum of Rs 1,000 contribution annually under Tier I and Rs 250 under Tier II.
Tax Benefits of NPS –
Tax benefits are major parts of retirement schemes. Individual taxpayers can claim a deduction on contributions under Tier I NPS up to Rs 1.5 lakh in a financial year under Section 80C. Also, NPS subscribers can claim an additional deduction for investments up to Rs 50,000 in a Tier I account in a financial year under Section 80CCD (1B) over and above the Rs 1.5 lakh deduction under Section 80C. However, contributions to Tier II do not provide any tax benefits.
NPS Withdrawal on Maturity –
When you reach the age of 60 you can entirely withdraw the amount from Tier I, of which only 60% is exempt from tax as with the remaining 40%, one has to purchase an annuity mandatorily.
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