The National Pension System (NPS) has emerged as a game-changing scheme for India’s retirement planning sector, launched on January 1, 2004.
Its main objective is to motivate individuals to make regular contributions to their pension funds during their working years, thereby ensuring a safe financial planning after retirement.
This scheme, jointly run by the government and the Pension Fund Regulatory and Development Authority (PFRDA), does not promise a predetermined pension amount but offers the possibility of favorable investment returns. NPS assets have achieved a compound annual growth rate (CAGR) of 37%, reaching Rs 2.76 lakh crore, mainly due to 58 lakh non-government customers who have contributed to this growth. Let us know what changes have happened in NPS recently.
1.Tax deduction limit
In the Union Budget 2024, Finance Minister Nirmala Sitharaman announced significant changes in the tax deduction limit for employer contributions. This adjustment increased the employer contribution benchmark from 10% to 14% of the employee’s salary. As a result, employees will now be able to get an additional deduction equal to 4% of their basic salary with respect to employer contributions to NPS. For example, an employee earning a basic monthly salary of ₹1 lakh can now avail an additional deduction of ₹4,000 every month.
2. NPS Withdrawal
The rules for final withdrawal from the National Pension System (NPS) have been revised in 2024. Now the subscriber is allowed to withdraw 60% of his total amount as a tax-free lump sum. The remaining 40% must be used to buy an annuity plan, which is not taxable on withdrawal but will be taxed during the annuity payment phase.
If the total amount on retirement is more than Rs 5 lakh, 40% of the NPS corpus should be used to buy an annuity plan, this portion will not have any tax implications. However, the annuity payment will be subject to taxation depending on the income tax bracket of the individual.
3. NPS Investment Allocation
The investment allocation guidelines within NPS have been amended. The rule now stipulates that individuals can maintain a maximum of 75% equity exposure until the age of 60. This allows customers to take advantage of investment growth opportunities during their employment years.
4. Equity allocation in Tier-2 NPS accounts
The government has increased the equity allocation limit for Tier-2 NPS account holders from 75% to 100% tax-free. This adjustment enables investors to increase their exposure to equities within their Tier-2 NPS accounts, thereby potentially increasing the potential for growth.
5. Direct Remittance (De-Remit) Service
With the introduction of Direct Remittance (De-Remit) facility, NPS subscribers can now access same-day NVA for their investments. By signing up for a Virtual Account Number linked to their bank account, investors can avail instant NVA on their contributions through the De-Remit process. This facility offers significant benefits to NPS investors.
6. Systematic Lump Sum Withdrawal
From February 2024, NPS subscribers had the option to make partial withdrawals for various purposes, such as funding their children’s higher education, buying or constructing residential property, and covering medical expenses. Subscribers can opt for Systematic Lump Sum Withdrawal (SLW) to withdraw up to 60% of their NPS funds periodically between the ages of 60 and 75. The remaining amount can be used for annuity planning.
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