National Pension Scheme (NPS)
Overview
The National Pension Scheme (NPS) is a cost-effective, government-backed, voluntary defined contribution retirement savings scheme. It offers two types of accounts:
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Tier I Account: A non-withdrawable account meant for retirement savings.
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Tier II Account: A voluntary savings facility with flexible withdrawals but no tax benefits.
Tax Structure
NPS follows the Exempt-Exempt-Tax (EET) structure:
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Exempt: Contributions up to a specified limit are tax-free.
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Exempt: Accrued capital gains are tax-free.
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Tax: Withdrawals are subject to tax.
All proceeds, whether lump sum or annuity, are paid in Indian currency, with no restriction on the repatriation of accruals.
Tax Benefits
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Section 80CCD (1B): A deduction for investment up to ₹50,000 in NPS (Tier I account) is available exclusively to NPS subscribers. This is in addition to the ₹1.5 lakh deduction available under Section 80C of the Income Tax Act, 1961.
Eligibility for NRIs and OCI
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Age: NRIs and OCI between 18 and 70 years can join NPS.
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Contribution: They can contribute up to age 75 years through fund transfers from their NRE or NRO accounts.
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Withdrawal Options:
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If the corpus is ₹5 lakh or less, the subscriber may withdraw the entire accumulated pension wealth in a lump sum.
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For premature exit, if the corpus is less than ₹2.5 lakh, the subscriber may withdraw the entire accumulated amount in one go.
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Recent Changes
Changes in 2021 have added relaxations that benefit the enrollment of NRI/OCI into NPS.
For more detailed information, refer to the government website