National Pension System (NPS) is an easily accessible, low cost, tax-efficient, flexible and portable retirement savings account. Under NPS, an individual contributes to his retirement account and his employer can also co-contribute for the employee's social security/welfare. There is no defined benefit that would be available at the time of exit from NPS and the accumulated wealth depends on the contributions made and the income generated from investment of such wealth. The greater the value of the contributions made, the greater the investments achieved, the longer the term over which the fund accumulates and the lower the charges deducted, and the larger would be the eventual benefit of the accumulated pension wealth.
NPS is managed by the Pension Fund Regulatory and Development Authority (PFRDA).
(Also Read: NPS Withdrawal Rules Changed - 10 Things To Know)
What is NPS Corporate Model?
PFRDA has launched a separate model to provide National Pension System to the employees of corporate entities, central public sector enterprises and public sector undertakings. This model is known as "NPS -Corporate Sector Model", stated PFRDA on its website pfrda.org.in.
What are the benefits to employees under Corporate Model of NPS?
National Pension System is the cheapest investment product with better growth options through long term market-linked returns, said PFRDA.
National Pension System provides choice of various funds with a flexible investment pattern.
An individual retirement account for record keeping at individual level ensures portability across geographies and employment.
The employee's as well as the employer's contribution towards the NPS account of employee is eligible for tax exemption as per the Income Tax Act, 1961 as amended from time to time.
NPS offers a Tier II account which is a voluntary savings facility with anytime liquidity/withdrawal option.
Routine/quarterly disclosure of the funds helps subscriber achieve better fund management under NPS.
There is an auto choice option for those who do not have the required knowledge to manage their investment.
What are the minimum contributions to Tier I and Tier II account?
Tax benefit to employees under NPS Corporate Model:
Employee's contribution is eligible for tax deduction up to 10 per cent of salary (Basic + Dearness Allowance) under section 80 CCD (1) within the overall ceiling of Rs. 1.50 lakh under Section 80 CCE.
NPS allows additional tax benefit on contribution up to Rs. 50,000 under Section 80CCD(1b) of the Income Tax Act, 1961. This is over and above the tax deduction available under Section 80 CCE.
Employer's contribution is eligible for tax deduction up to 10 per cent of salary (Basic + Dearness Allowance) contributed by employer under section 80 CCD (2), which shall be excluded from the limit of Rs. 1.50 lakh provided under Section 80 CCE.
(Also Read: FD Vs EPF Vs PPF Vs NSC Vs NPS: Interest Rates, Tax Benefits, Liquidity And Other Features Compared)
How are the funds contributed by the subscribers managed under NPS?
The funds contributed by subscribers are invested by PFRDA registered Pension Fund (PFs) as per the investment guidelines provided by PFRDA. The investment guidelines are framed in such a manner that there is minimal impact on the subscribers’ contributions even if there is a market downturn by a judicious mix of investment instruments like government securities, corporate bonds and equities. At present there are eight PFs which manage subscriber funds at the option of the subscriber. These are: ICICI Prudential Pension Fund, LIC Pension Fund Ltd, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund, SBI Pension Fund Pvt. Ltd, UTI Retirement Solutions Pension Fund, HDFC Pension Management Company Ltd, and Birla Sunlife Pension Management Ltd.