The National Pension System (NPS) is a voluntary and contributory pension scheme launched by the Government of India. It was introduced in 2004 with the aim of providing retirement income to Indian citizens. The NPS is regulated and administered by the Pension Fund Regulatory and Development Authority (PFRDA).
Key features of the National Pension System include:
- Voluntary participation: NPS is open to all Indian citizens between the ages of 18 and 65. Both salaried individuals and self-employed individuals can join the scheme.
- Tiered structure: NPS has two tiers. Tier 1 is a mandatory and non-withdrawable retirement account, while Tier 2 is an optional savings account with withdrawal flexibility.
- Contributions and investments: Participants in the NPS are required to contribute regularly to their pension account. The contributions are invested in various asset classes such as government bonds, corporate bonds, and equities, based on the participant's preference.
- Choice of fund managers: NPS provides individuals with the freedom to choose from multiple Pension Fund Managers (PFMs) who manage the investment of their contributions. These PFMs are regulated by the PFRDA.
- Portable and regulated: The NPS is portable, allowing individuals to contribute from anywhere in India and switch between PFMs if desired. It is also regulated by the PFRDA, ensuring transparency and accountability.
- Tax benefits: NPS offers tax benefits to its participants. Contributions made by individuals up to a specified limit are eligible for tax deductions under Section 80C of the Income Tax Act. Additionally, the partial withdrawal and the lump sum amount received at retirement are also subject to certain tax exemptions.
At the time of retirement, individuals have the option to withdraw a portion of their accumulated corpus as a lump sum, while the remaining amount is utilized to purchase an annuity from a PFRDA-approved insurance company, which provides a regular pension income during retirement.
It's important to note that the NPS rules and regulations may change over time, so it's advisable to refer to the latest information provided by the PFRDA or consult a financial advisor for accurate and up-to-date details.