The meaning of retirement has changed a lot as compared with the past generation. Retirement is no longer about living in a joint family with children and grandchildren, with all living needs taken care of by earning members of the family. Retirement today is about financial freedom, travel, gaining new hobbies and contributing to the society. It is no surprise then that any investment option which plans for one’s retirement generates a lot of interest.

To move along with the changing generation the government has introduced the new pension scheme. The New Pension Scheme of India is one of the million scheme which works as a self-financing social security tool. Although the scheme was introduced in 2009 it has started gaining interest in the public from the past few years or we can say from the last year only.

Before investing in NPS one should consider we must first take a look at the features of the scheme. NPS is a scheme, regulated by Pension Fund Regulatory and Development Authority (PFRDA) in which an individual can contribute to fund/funds up to 60 years of age post which s/he can draw an annuity for a lifetime. Let us look at some of the basic features of NPS:

  • You can subscribe to NPS through various Points of Presence (POP) which mostly covers banks and certain other financial entities. Where you will be allotted with a Permanent Retirement Account Number (PRAN) which is a unique number and valid across locations.
  • PRAN provides access to two types of accounts:
    • Tier I: This is a non-withdrawable account in which your contributions will be deposited.
    • Tier II: Tier II account is a voluntary savings account in which you can deposit as well as withdraw at any point. It works like a mutual fund. However, one cannot have a Tier II account without a Tier I account.
    • NPS account can be opened by people aged between 18 years and 60 years.
    • For Tier 1 account, the minimum contribution is Rs 6,000 in a year. The minimum amount per contribution is Rs 500 and there should be at least 1 contribution per year.
    • There are 8 pension fund managers (PFM) and money can be invested with any one of the 8 pension fund managers (PFM). There are 7 annuity service providers and one can opt for annuity with either of them.
    • The following two investment choices are available in NPS:
  • Active Choice: Individual Funds (Asset class E, Asset class C and Asset class G) and
    • Auto Choice: Lifecycle fund
    • In Active choice, you have the option to actively decide as to how your NPS contribution is to be invested in the following three asset classes:
  • Asset Class E: Investments in predominantly equity market instruments (maximum allocation of 50 per cent)
  • Asset Class C: Investments in fixed income instruments other than Government securities (maximum allocation of 100 per cent)
  • Asset Class G: Investments in Government securities (maximum allocation of 100 per cent)
  • In the Auto Choice option, your funds will be invested across various asset classes in a lifecycle fund as per a pre-defined portfolio wherein the PFM shall invest your contribution based on the asset allocation table formulated by PFRDA (based on your age).
  • If you withdraw your money before 60 years of age, you are permitted to take only 20 per cent lump sum and the remaining have to be used to purchase an annuity.
  • Beyond the age of 60, you can take up to 60 per cent in lump sum or on a phased manner up to 70 years of age and buy annuity for the balance 40 per cent.

In case of death, 100 per cent of the corpus will be available to the nominee.

 

Tax Benefit of National Pension System/Scheme:

 If by looking at the features if you are still not satisfied then let us have a few words about the tax benefit provided by the National Pension System/Scheme. Income tax act provides us with various deductions under chapter VI-A contribution to pension plans. These deductions are available under section 80C, 80CCC, 80CCD and can be claimed at the time of filing of income tax return. Let us focus on Section 80CCD this deduction provides deduction for contribution made to the notified pension scheme of central government and NPS (National Pension System/Scheme) is also included under one of those schemes of the central government. The benefit of deduction under 80CCD is only available to individuals both resident and non-resident individuals.

Amendment made under 80CCD and other deductions:

From time to time amendment is going on under the income tax act to benefit the common man same is in the case of NPS. Moreover, in the budget 2015 announced by Arun Jaitley a new sub-section 1B has also been introduced so as to provide additional deduction in respect of any amount paid, up to Rs. 50000 for contributions made by any individual assessee under NPS. This additional benefit of Rs.50000 is over and above the benefit of Rs. 1.5 lakhs which is claimed under section 80C. Therefore an individual can now claim a total of maximum 2 lakhs deduction which includes 80C and 80CCD.

 

Analysis of 80CCD (1) for deduction to NPS for contribution made by the individual:

80CCD (1) deduction is made available to salaried individuals but the non-salaried individuals can also avail the benefit of this deduction by making contribution to the NPS scheme. The individual can avail a maximum deduction of:

  • In case of salaried individual deduction will be 10% of his/her salary for the financial year(Salary includes basic salary dearness allowance but it doesn’t includes any other allowance and perquisites)
  • In case of non-salaried individual deduction will be 10% of Gross total income

The national pension system helps you to save tax in many ways. There are only seven NPS fund managers at present. The below is the table that compares the annuity service provider’s performance:

NPS Plans comparisons and return analysis:

Fund Manager

Returns last 1 year %

           Assets under Management               (Rs Cr)

Equity Plans

Government Bonds Plans

Corporate Debt Plans

HDFC Pension

-3.43

7.22

9.90

135

ICICI Prudential Pension

-3.41

7.44

11.07

452

Kotak Pension

-3.06

7.62

9.99

  98

LIC Pension Fund

-4.06

7.44

10.77

172

Reliance Capital Pension

-2.97

7.50

9.66

  85

SBI Pension

-3.34

7.56

9.67

  1400

UTI Retirement solutions

-2.11

7.62

9.77

114

 

By observing the above table we can come to know that under Equity Plans UTI Retirement solutions is the strongest player in the field following it Reliance Capital Pension and Kotak Pension are so what another option for investment with the good amount of return by investing in it. In the case of Government Bonds Plans we can see to it that UTI Retirement solutions and Kotak Pension are having a very tough competition amongst each other so you have a way toughest choice to make in Government Bonds Plans. Coming to Corporate Debt Plans here too ICICI Prudential Pension is the best plan we can analyze by its performance only seeing the return given to the investors. Getting to the Corpus fund under this SBI pension is having the highest volume of Asset in hand which is again followed by ICICI Prudential Pension. So now you must have made the decision to start making contribution to the Scheme so start comparing and start investing. If you still have any query regarding investment in pension scheme or any other investment you can contact at oneroofconsultant@gmail.com and mail your query.

Also read related article: How to Pay Zero Tax for Income up to Rs 10 Lakhs by CA Chirag Chauhan

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    I hope by reading this article you got enlighten on ,National Pension Scheme Return Analysis and Plan ComparisonNational Pension Scheme Return Analysis and Plan Comparison, Tax Benefit of National Pension System/Scheme, Amendment made under 80CCD and other deductions with reference to national pension scheme?, Analysis of 80CCD (1) for deduction to NPS for contribution made by the individual, NPS Plans comparisons and return analysis, Which National pension scheme to be selected for investment ?, Comparison of pension plan returns ?, National Pension Scheme Return Analysis and Plan Comparison, further to mention before taken any financial decision based on this content it is prefered to take an expert opinion as matter can be subjective.