NPS income tax benefits under the 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.
Active choice/auto choice: In the active choice, the individuals can choose the E (equity), C (fixed income other than government securities) and G (government securities) asset classes. In the active choice, the subscriber has to select a pension fund manager. One has to select the ratio of funds to be invested among equity, corporate debt and government bonds.
In the auto choice of National Pension System, the subscribers can select a pension fund manager and the funds are invested as per a formula based on the age of the subscriber. The pension fund managers are SBI Pension Funds, LIC Pension Fund, UTI Retirement Solutions, ICICI Prudential Pension Funds Management Company, Kotak Mahindra Pension, Reliance Capital Pension Fund. The PFMs tend to release daily NAVs (net asset values) to ensure subscriber can take informed decisions.
Net asset value: Net Asset Value is the price of one unit of a fund. NAV is calculated at the end of every working day between Monday and Friday. It is calculated by adding up the value of all the securities and cash in the fund's portfolio, subtracting the fund's liabilities, and dividing that number by the number of units that the fund has issued.
When you don't choose pension fund manager the SBI Pensions Fund acts as the default pension fund manager.
There are three sets of assets:
Asset class E: Investment in equity market instruments. Maximum investment in this class is 50 per cent of the total contribution. In April, NDTV reported that soon NPS could offer option to invest upto 75 per cent of your money in stocks.
Asset class G: Investment in government securities
Asset class C: Investment in fixed income instruments other than government securities.
In April, the PFRDA introduced a new rule that makes the bank account details and mobile numbers of subscribers mandatory. The pension regulator has introduced the new rule in order to offer ease of operation for the benefit of subscribers.
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