The origins of modern pension plans can be traced back to the American Revolutionary War when soldiers were provided with a monthly income for life. However, the system has come a long way and is being adopted by central and state governments. The Indian equivalent that comes to mind is the NPS or National Pension System. While you can learn more about NPS in this article, let's look at the different types of NPS accounts.
NPS is an accessible, low-cost, tax-efficient, flexible, and portable retirement savings account by the Government of India. It was initially intended for government employees but later opened to all Indian citizens.
The concept, in general, is quite simple. First, you can open an NPS account and deposit a certain amount at regular intervals. Then, at the time of retirement, you can withdraw 60% of the accumulated amount, and the balance 40% is invested in a retirement plan where you earn a steady income for the rest of your life.
Different Types of NPS accounts
There are two types of NPS accounts:
| PARTICULARS |
TIER I |
TIER II |
| Status |
Default |
Voluntary |
| Withdrawals |
Not Permitted |
Permitted |
| Tax Exemption |
Up to Rs.2 lakh p.a. |
1.5 lakh for Government employees Other Employees- None |
| Minimum NPS Contribution |
Rs.500 |
Rs.250 |
| Maximum NPS Contribution |
No Limit |
No Limit |
A Tier I account is mandatory for those who join the NPS program. Only central government employees are required to contribute 10% of their base salary, but the NPS is a voluntary investment plan for others.
NPS comes not only with retirement benefits but also incurs tax benefits as listed below:
- You can claim tax benefits on your contribution and employer contribution to the National Pension System under various sections of the Income Tax Act 1961. Government employees can apply for a tax exemption of up to Rs 1.5 lakh for contributions to the NPS fund under Section 80CCD (1). The tax benefit is capped at 10 percent for private-sector employees.
- In addition, employees may apply for an additional deduction of up to Rs 50,000 for contributions to the NPS under Section 80CCD (1b). Only those investing in NPS Tier 1 accounts can claim this additional Rs 50,000 deduction. There are no tax benefits available to investors in NPS Tier 2 funds.
Therefore, taxpayers can take advantage of up to one year of tax exemption when investing in NPS. Moreover, the above tax deductions are available if you pay income tax under the old tax regime.
- Employees are now entitled to exemption from tax on employer contributions to the NPS under Section 80CCD (2) of the Income Tax Act. So now, employees of both central and state governments can claim a 14 percent tax benefit on the NPS contributed by their employers. However, it should be noted that if the employer's contribution to the NPS, EPF, and Pension account exceeds Rs 7.5 lakh in any financial year, the employer's contribution to your employee's NPS account will be taxable.
Alankit specialises in handling all your queries related to your investment and retirement. Our team of experts will surely guide you in opening and maintaining your NPS account.
Enrol in NPS with us by simply following these steps:
- Go to https://www.alankit.com/npsnewregistration/index.html
- Click on 'Invest Now' to start your enrolment
- Fill in your 'Details'
- Choose your 'Investment Plan'
- Select your 'Fund Manager'
- Select the payment breakup details
- Mention your Residence Status & PAN details
- Verify your 'Mobile Number & Email Id' and 'Bank Details'
- Make the Payment
- Enter your 'Personal & Nominee Details'
- Upload your 'Documents' and click 'Submit' to complete
You have now subscribed to NPS!
Why Alankit?
One who invests in NPS also invests in their future. At Alankit, we help and guide our clients to invest in NPS and have a better old age while availing of the benefits and efficiently utilising their corpus.
Your successful retirement plan begins with the assessment of the features, including:
- Tax Benefits
- Risk Assessment
- Equity Allocation Rules
- Interest/Returns
Happy Investing!