NPS – 10 Point Guide

By: hirannya | Tags: 80C, 80CCD, Annuity, asset class, National Pension System, NPS, Pension, PFRDA | Comments: 2

Off late, lot of inquiries are coming in relation to NPS (National Pension System). We would be happy to answer them individually. But here is a quick 10 point guide in regards to the same. This may answer few of your doubts. But if the below guide does not answer your query, please mention the same using comment section below this article. We will surely get back. Here you go –

1) NPS Contribution can be made by all of us voluntarily or can be made as part of your salary structure i.e. by restructuring your CTC (Cost to Company) involving your employer. Please note that NPS contribution is mandatory for govt. employees joining service on or after 1st January 2004.

2) Contribution, when part of salary structure, is capped till 10% of your (Basic +DA).

3) Voluntary contribution or employee’s contribution of amount up to Rs. 1.50 lakhs is available for tax deduction U/S 80CCD(1), which is part of overall 80C limit of Rs. 1.50 lakhs.

4) From 1st April, 2015, an additional amount of Rs. 50,000 investment in NPS can be claimed for tax deduction U/S 80CCD(1B). This is over and above 80C limit of Rs. 1.50 lakhs.

5) The employer’s contribution (this is basically part of your CTC only. After restructuring your CTC gets reduced by the same amount.) falls U/S 80CCD(2) and this amount can also be claimed beyond 80C limit.

6) Under NPS two investment choices are available – Active choice and Auto choice. Under Active choice, three options are there – E, C and G. Under asset class E, investments are predominantly in equities (maximum up to 50%). Under asset class C, investments are into fixed income instruments other than GOI securities. Under asset class G, investments are in GOI securities. Under Auto choice, investments will be made in a life cycle fund in a pre-defined portfolio based on your age.

7) Maturity amount is taxable – not only gain, but the entire maturity amount.

8) Maturity of Tier-I a/c of NPS will happen at the age of 60 only. At least 40% of the maturity amount has to be used to buy annuity. If amount are withdrawn before age 60, then 80% of the maturity amount is to be compulsorily used to buy annuity only.

9) E, C and G asset class portfolios are now being manged by ICICI, Reliance, Kotak, HDFC, UTI, LIC and SBI Pension Funds. Switch between scheme and fund manager is possible.

10) NPS is administered and regulated by PFRDA (Pension Fund Regulatory and Development Authority)