The National Pension System (NPS) is a voluntary, long-term retirement savings scheme introduced by the Government of India. It was launched in January 2004 for government employees and later extended to all citizens in May 2009. The scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
Here are some key features of the National Pension System:
Voluntary Participation: NPS is open to all Indian citizens between the ages of 18 and 65. It allows subscribers to contribute towards their retirement savings voluntarily.
Tiered Structure: NPS operates under a two-tier structure:
Tier-I Account: This is a mandatory account with restrictions on withdrawals, aimed at providing retirement income.
Tier-II Account: This is a voluntary savings facility with no restrictions on withdrawals. However, a Tier-II account can only be opened if a Tier-I account is already active.
Investment Options: Subscribers can choose from various investment options, including equity, corporate bonds, government securities, and alternative assets like Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). These investments are managed by Pension Fund Managers (PFMs) appointed by the PFRDA.
Tax Benefits: Contributions made towards NPS are eligible for tax benefits under Section 80CCD of the Income Tax Act, subject to certain conditions. Additionally, partial withdrawals and lump-sum withdrawals at the time of retirement or exit are also tax-exempt up to certain limits.
Portability: NPS offers portability, allowing subscribers to maintain the same Permanent Retirement Account Number (PRAN) even if they change jobs or locations.
Annuity Options: At the time of retirement, subscribers can use a part of their accumulated corpus to purchase an annuity from an insurance company, providing a regular income stream during retirement.
NPS aims to provide financial security to individuals during their retirement years by encouraging long-term savings and investment. It has gained popularity due to its flexibility, tax benefits, and potential for higher returns compared to traditional retirement savings options.
