NPS: This pension scheme gives 5 big benefits to investors even before retirement, do you know

Benefits of National Pension System :National Pension System i.e. NPS is a popular pension scheme of the Central Government being run keeping retirement in mind. It is a social security initiative of the Central Government. However, this scheme is market linked. It was launched by the Central Government on 1 January 2004 for government employees. Since the year 2009, it has also been opened for private employees (Who can invest in NPS). NRIs are also eligible for this. It is necessary to invest in NPS for at least 20 years. After opening the account, contribution has to be made till the age of 60 or till maturity.

On retirement, one can withdraw up to 60% of the amount and buy annuity from the remaining fund. The specialty of NPS is that on retirement, neither can one withdraw 100% of the fund nor can one buy annuity from 100% of the fund. It is necessary to buy annuity with at least 40% of the amount. In this scheme, it is necessary to buy annuity for monthly pension. That is, this scheme not only gives pension and lump sum fund on retirement, but there are some big benefits available through it even before retirement, which is important to know about.

Tax benefits in NPS

• By investing in NPS, an investor can avail tax deduction of up to Rs 1.5 lakh under Section 80CCD (1) of the Income Tax Act.
• Special investors in NPS instruments get the benefit of an additional tax deduction of Rs 50,000 under Section 80CCD (1B) of the Income Tax Act. Such investors can avail tax deduction up to Rs 2 lakh. This is in addition to the tax deduction of up to Rs 1.5 lakh available on investments under Section 80C.
• Those who come under the corporate NPS model can avail additional tax benefit of 10 per cent of their basic salary under section 80CCD (2). This benefit is limited to Rs 7.5 lakh (including PF, retirement funds and NPS).
• All tax-related exemptions i.e. tax benefits are for those who avail benefits under the Old Income Tax Regime, while the Corporate NPS model applies to those who avail benefits under the New Income Tax Regime.

Your employer also gives benefits

Your employer gives you tax exemption on investment in NPS. Under this, you can invest up to 10 percent of your basic salary and dearness allowance in NPS, on which you will get tax exemption. If you are a government employee, then this figure can be up to 14 percent for you. Most companies provide NPS facility. Another thing is that if the employer also makes contribution in the NPS account, then the employee will not be allowed to withdraw any part of it.

Only partial withdrawal before retirement

According to the new master circular, NPS subscribers can withdraw a maximum of 25% of the total amount deposited in their pension account under certain special circumstances. Partial withdrawal will be allowed only to those subscribers who have been a member of the National Pension System (NPS) scheme for at least 3 years. During the entire subscription period in the scheme, any member will be allowed to make partial withdrawals a maximum of three times. In a way, you can say that your money is saved for the days of retirement. You are not able to spend it on any personal needs.

You can withdraw money under these circumstances

• For higher education of children
• for marriage of children
• To purchase or construct a residential house or flat. This house or flat should be in the subscriber’s own name or legally in joint ownership with his/her spouse.
• If the subscriber has a separate residential house or flat apart from ancestral property, he will not be allowed partial withdrawal to buy or construct a house.
• For treatment of critical illnesses. These illnesses include cancer, kidney failure, serious heart diseases, major organ transplant, coma, blindness, paralysis, COVID-19 and treatment and hospital expenses for critical accidents.
• Medical and other expenses incurred in connection with the Subscriber’s disability.
• Expenses incurred by the Subscriber on his/her skill development/reskilling or any other self-development activity.
• Expenses incurred by the subscriber to start his own business or startup.

You can choose the investment option

Talking about investment plans, you either get fixed returns or such returns (NPS Return) over which you have no control i.e. market linked. If you invest in NPS, then you can decide yourself how much money you want to invest in the stock market and how much in fixed return options. If you join this scheme at a young age, then by taking some risk and increasing investment in the equity portion, you can create a large corpus through high returns before retirement. At the same time, with increasing age, you can reduce the equity portion and increase the fixed income portion.