National Pension Scheme in India
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National Pension Scheme in India

The National Pension System (NPS) is a voluntary, long-term retirement savings scheme designed to enable systematic savings. It was launched by the Government of India in 2004, initially for new government employees, and later extended to all citizens in 2009.

Key features of the National Pension Scheme (NPS) include:

  1. Voluntary Participation: NPS is open to all Indian citizens, including resident individuals, Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs).
  2. Types of Accounts: There are two types of accounts under NPS:
    • Tier I Account: This is a non-withdrawable, long-term retirement account, which can only be withdrawn upon reaching the age of 60. A certain portion of the corpus must be used to purchase an annuity that provides a regular pension.
    • Tier II Account: This is a voluntary, withdrawable account that allows subscribers to withdraw funds as and when needed. Tier II is allowed only if a Tier I account is active.
  3. Investment Options: NPS offers a choice of investment options and pension funds. Subscribers can choose between Asset Class E (Equity), Asset Class C (Corporate Bonds), and Asset Class G (Government Securities). They can also select a combination of these funds based on their risk appetite.
  4. Auto Choice Option: For those who do not want to actively manage their investments, the Auto Choice option is available. Under this, the investments are made in a life-cycle fund, where the allocation to equities is higher when the subscriber is younger and decreases as they age.
  5. Tax Benefits: Contributions made to NPS are eligible for tax benefits under Section 80CCD(1), Section 80CCD(1B), and Section 80CCD(2) of the Income Tax Act, 1961. The scheme also allows for an additional deduction of up to Rs 50,000 under Section 80CCD(1B) over and above the limit of Section 80C.
  6. Portability: NPS is portable across jobs and locations, allowing subscribers to contribute from anywhere in India.
  7. Withdrawal Options: While Tier I is designed for a long-term retirement savings, partial withdrawals are allowed for specific purposes like children's education, buying a house, etc. Full withdrawal is permitted upon reaching the age of 60, and a certain percentage must be used to purchase an annuity.

NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It aims to provide retirement income to all citizens and has gained popularity as a long-term savings and investment option in India.

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