The NPS National Pension Schemes is a pension fund supported by the government and regulated by the Pension Fund Regulatory and Development Authority(PFRDA). The scheme helps to accumulate pensions. The program is open to all Indian citizens between the ages of 18 and 65.
On the other hand, people with unsound minds or current National Pension Schemes holders are not allowed to open new accounts. As a result, a person can only have one NPS account. Let’s talk about the latest NPS exit and withdrawal guidelines for 2021.
This is a fixed contribution product linked to the market and requires you to invest your chosen funds on a regular basis. The return is based on the performance of the fund you choose. There are eight types of pension fund managers to choose from, and one of the ways to do this is to track returns.
National Pension Schemes Returns:
In the past year, all pension fund managers’ stock and debt plans had provided double-digit returns, so NPS plans have performed better than others. Both the primary and secondary accounts have shown incredible gains. Last year, the NPS scheme E’s rate of return was as high as 22%, which was consistent with the benchmark rate of return.
Last year, the first-tier account return of HDFC pension funds was 21.77%, followed by Aditya Birla Sun Life (20.90%) and ICICI Prudential Pension Fund (20.50%).
The minimum return of the LIC pension fund in the first-level NPS account G plan is 17.96%. The debt schemes under the National Pension Schemes , C, and G schemes also brought double-digit returns. Under the C scheme, which invests in corporate bonds, the LIC pension fund achieved the highest return of 15.19% in the past year.
National Pension Schemes G invests in government bonds and related securities. This is a low-risk investment option. In the past year, double-digit returns have been attracting naive investors to invest in such schemes, with an average return of 13.66%.
NPS Returns, Maturity Amount Taxation Rules:
There are many controversies about whether National Pension Schemes provides exempt-exempt-exempt tax concessions. In order to make an investment instrument to be exempt-exempt-exempt or Triple E, it should meet the following three conditions:
- The investment is eligible for tax exemption.
- Tax exemption on income earned from investments.
- Income at maturity is not taxed.
Technically speaking, NPS satisfies all three conditions, sometimes referred to as exempt-exempt-exempt or triple E.
However, there is a catch. The last part about the withdrawal of maturity income comes with some conditions. Although cash withdrawals at retirement are not taxed, there is a condition that part of the money needs to be used in annuity instruments.
According to current tax laws, the money received from the annuity will be added to your taxable income. Here, the third condition for the instrument to be eligible for exempt-exempt-exempt or triple E is a conflict of view.
Therefore, although technically speaking, NPS is a Triple E tool that meets the three criteria previously proposed, there are some problems due to the mandatory annuity plan involved.
NPS Tax Benefits Under Section 80CCD:
Tax benefits available to individuals: Any individual who becomes an National Pension Schemes subscriber can claim tax benefits within the overall maximum limit of Rs 1.5lakh following the provisions of 80 CCD (1).
The exclusive tax benefit of 80CCD (1B) for all NPS subscribers: According to subsection 80CCD (1B),National Pension Schemes subscribers can only use 50,000 National Pension Schemes (Tier I account). This exceeds the deduction of Rs. 50k According to Article 80C of the Income Tax Act In 1961, 150,000 rupees can be spent.
Tax Benefits Under The Corporate Sector:
Corporate subscribers: According to No. 80CCD(2) of the Income Tax Act, subscribers under the corporate sector can obtain additional tax incentives.
The employer’s NPS contribution (for the benefit of the employee) is up to 10% of the salary (basic + DA), which can be deducted from the taxable income without any amount limit.
Corporate legal person: The maximum salary paid by the employer for the NPS is 10% of the salary (basic + DA), which can be deducted from its income statement as “corporate expenses”.
Please note: Tax benefits only apply to investments in Tier 1 accounts.
In addition to the tax benefits that “80CCD” can provide, the National Pension Scheme also provides other tax benefits:
Tax benefits on partial withdrawals: Subscribers can withdraw funds from the NPS Tier 1 account before the age of 60 for specific purposes. According to the 2017 budget, 25% of the withdrawal of subscriber contributions is tax-free.
Tax benefits on purchasing annuities: The investment amount for purchasing annuities is completely tax-free. However, the annuity income you receive in subsequent years will be subject to income tax.
Tax benefits on one-time withdrawal: After the subscriber reaches 60 years of age, up to 40% of the total subject of one-time withdrawal is exempt from tax.