Market Secrets – Tax Saving Series – NPS

What is NPS (National Pension System)?

• NPS is an easily accessible, low cost, tax efficient, flexible and portable retirement savings account.

Who can Join NPS?

• Individuals who are aged between 18 – 60 years (You cannot contribute once you turn 60)
• Investment in NPS is independent of your contribution to any Provident Fund.

How and where can I open a NPS account?

• NPS  is  distributed  through  authorized entities  called Points of Presence (POP’s) and almost all the banks
• Best option is to do it yourself online, once open you will get a PRAN (Permanent Retirement Account Number)

What are the features of the retirement account provided under NPS?

• Under  NPS  account,  two  sub-accounts – Tier  I  &  II are  provided.     
• Tier  I  account  is mandatory  and  the  subscriber  has  option  to  opt  for  Tier  II  account  opening  and operation.  
• The following are the salient features of these sub-accounts
• Tier-I  account: This is  a non-withdrawable retirement account which  can  be withdrawn only upon meeting the exit conditions prescribed under NPS.
• Tier-II account: This is a voluntary savings facility available as an add-on to any Tier-1 account  holder.  Subscribers  will  be  free  to  withdraw  their  savings  from this account whenever they wish.

Minimum Contribution per year?

• Tier 1 – 6000
• Tier 2 – 2000

How the Funds are Managed?

• The  funds  contributed  by  the  Subscribers  are  invested  by  the  PFRDA  registered  Pension  Fund Managers.
• You can choose among the fund houses (like LIC, ICICI) and allowed to switch between houses
• Users can opt for Active choice or Auto-choice for Asset Allocation (i.e, Stocks, Bond, G-Sec Allocation %, auto is age based)

Tax benefits?

• Tier 1 – Upto 50000 is Tax Free under Section 80 CCD(1)
• Tier 2 – No Tax Benefits

How and When to withdraw?

• Allowed to withdraw once you attain age of 60
• Only 60% of accumulated amount can be withdrawn (can be deferred till 70 years of age)
• Remaining 40% goes to Annuity, which will be utilized to provide monthly pension
• If subscriber dies before 60, entire corpus will be provided to family
• 3 Emergency withdrawals are allowed totally

Benefits:

• Additional tax exception of 50K, highly useful for people in 20 or 30% tax bracket
• Investment is locked-in till 60, guarantees the most important thing needed for growth – TIME

We have explained about this in detail in the video:
https://youtu.be/2RPfMlsajqA

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