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National Pension System (NPS)

1. It's like PPF and EPF is an EEE
(Exempt-Exempt-Exempt) instrument in India
where the entire corpus escapes tax at maturity
and entire pension withdrawal amount is
tax-free.

2. Any Indian Citizen between the age of 65–70

years can join NPS and continue or defer their
NPS Account up to the age of 75 years.

3. It is administered and regulated by the

Pension Fund Regulatory and Development
Authority (PFRDA).

4. On 10 December 2018, the Government of

India made NPS an entirely tax-free instrument
in India where the entire corpus escapes tax at
maturity; the 40% annuity also became tax-free.

5. Any individual who is Subscriber of NPS can

claim tax benefit for Tier-I account under Sec 80
CCD (1) with in the overall ceiling of Rs. 1.5 lac
under Sec 80 C of Income Tax Act. 1961. An
additional deduction for investment up to Rs.
50,000 in NPS (Tier I account) is available
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exclusively to NPS subscribers under subsection

80CCD (1B).

6. There is no tax benefit on investment towards

Tier II NPS Account. NPS is limited EEE, to the
extent of 60%. 40% has to be compulsorily used
to purchase an annuity, which is taxable at the
applicable tax slab.

7. Contributions to NPS receive tax exemptions

under Section 80C, Section 80CCC and Section
80CCD(1) of Income Tax Act. Starting from 2016,
an additional tax benefit of Rs 50,000 under
Section 80CCD(1b) is provided under NPS, which
is over the Rs 1.5 lakh exemption of Section 80C.

8. NPS is considered one of the best tax saving

instruments, after 40% of the corpus was made
tax-free at the time of maturity and it is ranked
just below equity-linked savings scheme (ELSS).

9. NPS is a market-linked annuity product.

10. At present, central government employees

have no say in the matter of choice of fund
manager or investment allocation in NPS, as both
are decided by the government. All the NPS
contributions of Central government employees
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are being distributed evenly across three public

sector fund managers :LIC Pension Fund, SBI
Pension Fund and UTI Retirement Solutions.

11. There are seven fund managers and eight

annuity service providers for subscribers to
choose from. The subscriber can choose to invest
either, wholly or in combination, in four types of
investment schemes offered by the pension fund
managers. These are:

- Scheme E (equity) which allows up to 75%

equity participation, this is invested in stocks
- Scheme C (corporate debt) which invests only in
high-quality corporate bonds up to 100%
- Scheme G (government/gilt bonds) which
invests only in government bonds up to 100%
- Scheme A (alternative investment) which allows
up to 5% (newly added asset class only for
private sector subscriber with active choice)

Alternatively, the subscriber can opt for the

default scheme, whereas per the time left to
retirement his portfolio is rebalanced each year
for the proportion of equity, corporate bonds,
and government bonds.

12. NPS offers two types of accounts to its

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subscribers:

(A) Tier I :The primary account, which is a pension

account which has restrictions on withdrawals
and utilization of accumulated corpus. All the tax
breaks that NPS offers are applicable only to Tier
I accounts.

(B) Tier II: In order to introduce some liquidity to

the scheme, the PFRDA allows for a Tier II
account where subscribers with pre-existing Tier
I accounts can deposit and withdraw money as
and when they want. NPS Tier II is an investment
account, similar to a mutual fund in
characteristics, but offers no Exit load, no
commissions, good returns.

The Tier 2 NPS account offers tax benefits to

government employees under certain conditions.

The contribution to voluntary savings account

(also called Tier-II account) can only be made by
the subscriber and not by any third party.

13. PFRDA introduced new features to NPS in

2016, including more choices to lifecycle funds:

- Aggressive Life Cycle Fund (LC-75) which allows

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subscribers equity exposure of up to 75% till 35

years of age. This is more suitable to a 20s
investor.

- Conservative Life Cycle Fund (LC-25) with a 25%

starting equity exposure, may be suited to older
investors.

14. Premature withdrawal in NPS before age 60

required parking 80% of the sum in an annuity.
One can withdraw 20 percent of the corpus
before 60 years but he/she must buy annuity
with 80 percent of the corpus. In 2016, the NPS
allowed withdrawal of up to 25% of
contributions for specified reasons, if the scheme
is at least 3 years old with certain conditions.
One can withdraw the complete amount if the
pension collected is less than INR 5,00,000.