The National Pension System i.e. NPS is a government retirement saving scheme, which was launched by the central government on 1 January 2004.
This scheme is mandatory for all government employees joining after this date. Since 2009, the scheme has also been opened to people working in the private sector.
It is a type of pension cum investment scheme that guarantees market-based returns and any Indian citizen whose age is between 18 and 60 years can join it. It is necessary to follow the Know Your Customer (KYC) rules to join this scheme.
There are 2 types of NPS accounts:
Tier-1 and Tier-2. Until you turn to age 60, you cannot withdraw money deposited in a Tier-1 account. A Tier-2 NPS account works like a savings account, where customers are allowed to withdraw money. you are also allowed partial withdrawals under special circumstances.
The employees contribute to their retirement account and their company also contributes to the employee's account. An employee's contribution to the NPS is 10 percent of the basic salary, although They can contribute 14 percent for his own self.
NPS also provides an additional discount of Rs 50,000 in Tier One account on investment. This exemption is available under Section 80CCD (1B) of Income Tax. This is exempt from the exemption of Rs 1.50 lakhs found under Section 80C of Income Tax.
NPS subscribers can claim income tax deduction up to 10 percent of the total income under Section 80 CCD (1) of the Income Tax Act and a total tax exemption of Rs 1.5 lakh under 80 CCE.
The government has increased its contribution to NPS from 10 percent to 14 percent now. However, the minimum contribution of employees will be 10 percent.
What are the different sectors under NPS?
NPS can be broadly classified into two categories and in addition it can be divided into the following different sectors:
- Central Government
- State Government
Private Sectors (Non-Government Sectors)
- All Citizen of India