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- Tier-I account: This is a non-withdrawable retirement account which can be withdrawn only upon meeting the exit conditions prescribed under NPS.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- Only 60% of accumulated amount can be withdrawn (can be deferred till 70 years of age)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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