National Pension System or NPS, a government-run investment scheme, gives the subscriber the option to set the preferred allocation to different asset classes. The subscriber can either apply for an NPS account by visiting a Point of Presence (PoP), or do it online through the e-NPS website.
Here are key things to know about NPS:
An NPS account can be opened by a citizen of 18-65 years of age.
Types of account
NPS offers two kinds of accounts — Tier 1 and Tier 2 — for instruments including government bonds, equity market and corporate debt.
While the Tier 1 NPS account is strictly a pension account, the Tier 2 account — known as investment account — is a voluntary saving account associated with the PRAN.
A Tier 1 account allows the subscriber to make a premature withdrawal or even exit under certain conditions. In case the total accumulated corpus in a Tier 1 account is less than Rs 2 lakh, the subscriber can opt for a 100 percent lump sum withdrawal upon attaining 60 years of age.
A Tier II account, meanwhile, offers greater flexibility in terms of withdrawal, as it enables the subscriber to withdraw funds any time without any restrictions.
A subscriber cannot, however, withdraw money from the NPS before the completion of three years. The subscribers can make a partial withdrawal a maximum of three times during the entire tenure of subscription under NPS.
The partial withdrawal request can be initiated online by the subscriber. Alternatively, a subscriber can submit physical partial withdrawal form along with documents.
Income tax benefits
Investment in a Tier 1 account offers income tax benefits. There is no tax benefit on the fund parked in a Tier II NPS account.
Any individual who is subscriber of NPS can claim tax deduction up to 10 percent of gross income with in the overall ceiling of Rs 1.5 lakh.
An additional deduction for investment up to Rs 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs 1.5 lakh available under section 80C of Income Tax Act.
First Published: IST