National Pension Scheme: Key Features, Tax Benefits, And Eligibility Explained

The National Pension Scheme (NPS) has become an essential part of India's financial scene, providing people with a reliable way to plan for retirement and ensure financial security. Governed by the Pension Fund Regulatory and Development Authority (PFRDA), the NPS is a voluntary, long-term retirement savings scheme designed to provide a steady income stream during the post-employment phase.

NPS investment: Key features

The NPS operates through Individual Pension Accounts (IPAs), and each subscriber is assigned a Permanent Retirement Account Number (PRAN). Subscribers can make regular contributions to their NPS account throughout their working years, ensuring a substantial fund for their retirement.

Another feature of NPS is its flexibility, offering subscribers two options - Active Choice and Auto Choice. In Active Choice, individuals can decide how to distribute their funds among different asset classes like equities, corporate bonds, and government securities. In Auto Choice, the asset allocation adjusts automatically based on the subscriber's age and risk preference.

What are the Tax benefits

Contributions to NPS offers attractive tax benefits. Subscribers can enjoy deductions for their contributions under Section 80CCD(1), up to 10 per cent of their salary (basic + DA) or 20 per cent of gross income for self-employed individuals. Moreover, an extra deduction of up to Rs 50,000 is available under Section 80CCD(1B), providing an additional incentive for long-term savings.

Who manages the NPS money?

NPS investments are managed by Pension Fund Managers (PFMs) appointed by the PFRDA. The scheme's performance is regularly monitored, ensuring transparency and accountability.

Who are eligible for NPS?

The NPS is open to all Indian citizens, whether employed or self-employed. It caters to the needs of various segments, offering a pension solution for the organized as well as the unorganized workforce.

The National Pension Scheme (NPS) is open to all Indian citizens, both residents and non-residents, as well as Non-Resident Indians (NRIs), falling within the age range of 18 to 70 years. Eligible individuals should adhere to Know Your Customer (KYC) norms outlined in the application form and possess the legal capacity to execute a contract under the Indian Contract Act. However, Overseas Citizens of India (OCI), Persons of Indian Origin (PIOs), and Hindu Undivided Families (HUFs) cannot subscribe to NPS. It's important to note that NPS is an individual pension account, and opening it on behalf of a third person is not permissible.