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Tax Benefit under NPS for 2021

The PFRDA (Pension Fund Regulatory and Development Authority) governs the National Pension System (NPS) 2021, which is a retirement pension programme established by the Government of India to provide subscribers with a regular income after retirement. NPS 2021 nowadays is the best option that will help you in getting tax benefits.<br>It may be a smart choice for you because of the low minimum commitment and higher returns for retirement planning.

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Tax Benefit under NPS for 2021

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  1. Tax benefit under NPS for 2021 VINOD K AGRAWAL & ASSOCIATES, CA

  2. What is NPS? NPS seeks to inculcate the habit of saving for retirement amongst the citizens. It is an attempt towards finding a sustainable solution to the problem of providing adequate retirement income to every citizen of India.

  3. Who regulates NPS? • Pension fund Regulatory and Development Authority. • Website: https://www.pfrda.org.in/

  4. Who can open NPS?

  5. Where to they invest money? Under the NPS, individual savings are pooled in to a pension fund which are invested by professional fund managers as per the approved guidelines in to the diversified portfolios comprising of government bonds, bills, corporate debentures and shares. 

  6. Which NPS fund are available? 1. SBI Life Insurance Co. Ltd 2. Life Insurance Corporation of India 3. Star Union Dai-ichi Life Insurance Co. Ltd 4. ICICI Prudential Life Insurance Co. Ltd 5. HDFC Life Insurance Co Ltd. 6. IndiaFirst Life Insurance Co Ltd 7. Edelweiss Tokio Life Insurance Co. Ltd 8. Bajaj Allianz Life Insurance Co Ltd. 9. Canara HSBC Oriental bank of Commerce Life Insurance co Ltd. 10. Kotak Mahindra Life Insurance Co Ltd. 11. Tata AIA Life Insurance Company Limited 12. Max Life Insurance Company Limited 13. PNB Metlife India Insurance Company Limited 14. Aditya Birla SunLife Insurance Company Limited

  7. What documents are required? PAN Proof of Address Proof of Bank Account Photograph

  8. What is PRAN? • Permanent Retirement Account Number • PRAN is a unique identification number allotted to a subscriber for his/her Individual Pension Account opened under NPS. The PRAN remains unchanged even though the subscriber shifts employment or location.

  9. How much Pension will I receive? • The amount of pension will depend on the amount of contributions made, returns on the investments and the portion of corpus utilised by the subscriber for purchasing annuity plan from any of the Annuity Service Providers empanelled with PFRDA. • Under NPS, there is no implicit or explicit assurance of benefit and the investments are subject to market conditions. • To get the pension calculator visit: http://www.npstrust.org.in/content/pension-calculator

  10. What happens if you don’t make the minimum contribution? If minimum contribution is not received, the account is categorized as ‘frozen’ and will get activated upon making a contribution to the account.

  11. Types of NPS account? • Tier-I is the Individual Pension Account, which is the default pension account having all the tax incentives under Income Tax Act. • Tier-II is an optional investment account available to a subscriber having an active Tier-I account. This account has no withdrawal restrictions and tax benefits.

  12. Section 80CCD (1) • First limit for NPS deduction • 10% of Basic + DA in case employed • 20% of gross income in case self-employed • Second limit • 80C + 80CCD(1) = Maximum Rs 1,50,000

  13. Section 80CCD (1B) • Rs 50,000 • This is additional deduction, over and above 1.50 limit.

  14. Section 80CCD (2) • Contribution received from Employer is also allowed as deduction under this section. • Employer should directly contribute to NPS for claiming deduction. • Maximum 10% of Basic + DA

  15. Partial Withdrawal Rules • Tier – I after completion of 3 years subscriber can withdraw 25% of his own contributions for specific reasons - illness, disability, education or marriage of children, purchasing property, starting a new venture. Max 3 times allowed. • Withdrawal from NPS Tier-II account is permitted at any point of time, without any restrictions.

  16. Taxation - Partial Withdrawal EXEMPT

  17. Tier I Premature Withdrawal • Allowed after 10 years • Subscriber can withdraw maximum 20% of the corpus as lumpsum and minimum 80% of the corpus has to be utilized for purchasing an annuity plan. • However, if the accumulated corpus is less than Rs 2.5 lakh, the entire corpus is paid as lumpsum to the subscriber.

  18. Tier I Normal Withdrawal • on completion of 60 years of age • subscriber can withdraw maximum 60% of the corpus as lumpsum • minimum 40% of the corpus has to be utilized for purchasing an annuity plan for receiving the pension. • If the accumulated corpus is less than Rs 5 lakhs, the entire corpus is paid as lumpsum to the subscriber

  19. Taxation - Closure • Exempt upto 60% • To save tax on balance 40% invest in annuity plan. • Pension received under Annuity plan is taxable as per slab rate. • Amount received by Nominee on closure of NPS due to death is fully exempt.

  20. Hope it helps! VINOD K AGRAWAL & ASSOCIATES, CA

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