Here are 10 things to know about National Pension System (NPS):
NPS offers two kinds of accounts: tier 1 and tier 2. While the tier I NPS account is a pension account, the tier II NPS account is a savings account. This means the subscriber is allowed to withdraw money as and when required from the tier II account, but not the tier 1 account.
A subscriber contributes 10 per cent of his basic salary plus dearness allowance (DA) into Tier-I (pension) account on a mandatory basis every month which is invested along with the matching contribution from the employer.
An existing subscriber can approach any Point of Presence- Service Providers (POP-SP) or alternatively can visit the e-NPS website - enps.nsdl.com for making additional contribution to the Tier I account.
The central government subscribers have the option of selecting the Pension Funds (PFs) and investment patterns in tier I account. A subscriber can choose any one of the available PFs and investment option as per their choice, according to NSDL.
A subscriber has the option to change the pension fund manager. At present, the subscriber can change the pension fund manager once in a financial year.
NPS allows premature withdrawal and exit from an account under certain conditions.
Tax benefits are applicable for investments in the Tier I account only. There is no tax benefit on investment towards the Tier II NPS account.
In Budget 2019, the government proposed to increase the income tax exemption limit on withdrawal from National Pension System (NPS) to 60 per cent, from the existing 40 per cent.
The government also proposed to increase the limit from 10 to 14 per cent of contribution made by the government to the accounts of its employees. As per the existing provisions, any NPS subscriber can claim a tax deduction up to 10 per cent of gross income under Section 80 CCD (1) of Income Tax Act with in the overall ceiling of Rs 1.5 lakh under Section 80 CCE of the Act.
An additional deduction for investment up to Rs. 50,000 in NPS is available exclusively to subscribers under Section 80CCD (1B) of Income Tax Act, according to NSDL.