NPS is one of the best Retirement Planning Tool available in the country Today. It will prove to be a real “Budhaape ki Lathi” for the subscribers joining in this scheme.
The reasons for joining in the scheme can be summarised under two distinct heads:
Advantages of NPS for individual Subscribers :
An additional tax deduction on investment up to Rs.50,000 in NPS under sub-section 80CCD (1B). This is over and above the Sec 80 C limit of Rs.1,50,000/-. This is an exclusive tax deduction available for investment in NPS.
Tax deduction on account of contribution by the individual subscriber to NPS can be claimed up to 20% of salary (Basic + DA) or 10% of Annual Income under Sec 80 CCD(1), subject to overall ceiling of Rs. 1.50 lacs u/s 80 CCE of Income Tax Act. 1961.
Tax deduction on Employer’s Contribution to NPS up to 10 % of salary (Basic + DA), under Section 80 CCD(2). It has no upper cap on the amount. For this the company has to register itself with PFRDA.
However, the Budget of FY 2020-21 has put a monetary limit on the tax-exempt contribution by the Employer to NPS account, EPF & Super Annuation Fund. Accordingly, employer's contribution to EPF, NPS and Superannuation Fund exceeding more than Rs 7.5 lakh in a financial year will be taxable in the hands of an employe
Tax benefits mentioned in point (i) & (iii) above are exclusive deduction available for investments in NPS only.
- A Product with EEE Status (Exempt Exempt Exempt): There is complete tax exemption to the withdrawals from NPS on maturity. NPS in its present form has acquired the status of EEE (Exemption at the time of Investment, Exemption at the time of accretion and finally Exemption at the time of Withdrawal).
- Lower Expense Ratio: NPS is perhaps the world’s lowest cost pension scheme. The total recurring expenses inclusive of the Fund Management fee and all other handling and administrative charges would work out to be around 0.26% p.a. The low cost would lead to generation of higher Retirement Corpus and hence the retirement benefits.
- Ensures Complete Portability: NPS provides seamless portability across jobs and across locations, unlike all current pension plans. NPS account can be operated from anywhere in the country irrespective of employment and geography.
- Flexibility: NPS offers a range of investment options and choice of Pension Fund Managers (PFMs) for planning the growth of your investments in a definitive manner and see your money grow. The Subscribers have a freedom to change the PFM or the Investment Mix twice a year. Choice of Life Cycle Fund is also available.
- Well Regulated: NPS is regulated by PFRDA, with transparent investment norms, regular monitoring and performance review of fund managers by NPS Trust/PFRDA.
Advantages to Corporates for NPS Implementation :
Cost effective for the Organisation: No extra cost involved in implementation of NPS on the part of employer.
- Contributions made under NPS deductible as Business Expense: Contributions made by the Employer (Up to 10% of Basic Pay + DA) is allowed as Business Expense under Section 36 (1) (iv a) of the Income Tax Act 1961.
- Convenience of implementing: The Employer has to take the consent of Employee and get them enrolled for NPS. No action needs to be taken by the employer when the employee leaves the Organisation as the NPS Account opened in the name of employee is portable anywhere in the country irrespective of employment and geography.
- No extra setup required for Fund Management, Compliance, Audit, Record maintenance and servicing on the part of the employer.
- No extra financial liability to the employer like matching of minimum return as the fund is independently managed by the PFM appointed by PFRDA.