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5 things to know about new National Pension Scheme rules
NPS is a defined contribution pension plan that offers two types of accounts. Read to know more…
The Indian government has been modifying the National Pension Scheme (NPS) rules to make the pension scheme more subscriber-friendly. NPS, which was initially alerted for central government employees joining service on or after January 2004 and later adopted by almost all state governments for its employees, was extended to all Indian citizens voluntarily from May 2009. It was extended to non-resident Indians or NRIs in October 2015. In October 2019, more than 66 lakh government employees have been enrolled under NPS, and 19.2 lakh subscribers have subscribed to NPS in the private sector.
Here are 5 things to know about recent changes in NPS rules:
1) In the 2019 Union Budget, the government increased the income tax exemption limit for the lumpsum withdrawal at NPS expiration to 60%, from the previous 40%. The remaining 40% of the corpus is already exempt from taxes, as it is compulsory for the purchase of annuities.
2) For employees of the central government, the Income Tax Act has been modified to allow exemption from the employer's contribution up to 14% of the salary of central government employees. This additional benefit does not apply to private-sector employees, for whom the employer contribution of up to 10% is tax-free.
3) Central government employees also get another additional benefit. Your contribution to the NPS Tier II account qualifies for income tax benefits under Section 80C, provided that the money is locked for three years.
4) Overseas Citizens of India (OCI) - Indian origin people with citizenship of other countries - have been allowed to invest in the NPS Tier 1 scheme, making them on par with non-resident Indians or NRIs. Though, NRI and OCI subscribers cannot invest in the NPS Tier II account.
NPS, which is a defined contribution pension plan, comes with two types of accounts. The Tier 1 account or the pension account offers tax benefits and is obligatory. The Tier II account, an optional account, comes with withdrawal flexibility.
5) As of August 2019, the charges for NPS subscribers increased marginally after NPS Trust also allowed the recovery of administrative fees/expenses to 0.005% per year. NPS Trust had stopped in January the recovery of administrative charges/expenses that it used to charge at 0.005% per year of AUM on a daily accrual basis to cover its costs.
