With the government increasing the maximum age of joining the National Pension System (NPS)-Private Sector from the existing 60 years to 65 years, NPS has come in the news again. Now any Indian citizen – whether resident or non-resident and between the age of 60-65 years — can also join NPS and continue up to the age of 70 years. Subscribers joining NPS after the age of 60 years will have an option of normal exit from NPS after completion of 3 years. In this case, however, the subscriber will be required to utilize at least 40% of the corpus for purchase of annuity and the remaining amount can be withdrawn in lump-sum.
In case of anyone willing to exit from NPS before completion of 3 years, he/she will be allowed to do so, but in this case, he/she will have to utilize at least 80% of the corpus for the purchase of annuity and the remaining amount can be withdrawn in lumpsum. This initiative will allow a larger segment of society, particularly senior citizens, to reap the benefits of NPS and plan for their regular income.
However, if 65 years is the maximum age of joining NPS, then what is the minimum age? Also, what is the minimum contribution required to keep the account active?
Here we are taking a look at some of the key features of NPS which you need to know:
What is NPS: NPS is a government-promoted financial instrument developed to provide social security after retirement. It is administered by the Pension Fund Regulatory and Development Authority (PFRDA) and addresses the retirement needs of even employees in the unorganized sector.
Purpose: NPS is mainly aimed at providing benefit to individuals after retirement. NPS offers two account types: Tier I and Tier II. While Tier I account is a compulsory one, Tier II is an optional account where withdrawals are possible. In Tier 1, the contribution which is paid to the government is made by the employee. For Tier 2, no contribution is made by the government. Here you can do additional tax savings and claim it under the IT Act.
Duration: NPS is a long-term investment which is mainly done to accumulate wealth for your retirement, which is after 60 years of age and hence to be paid in the form of annuity. However, some percent of the accumulated wealth can be withdrawn at one go.
Eligibility: All working Indian citizens who are between the age of 18 years and 65 years can apply for this scheme. Even NRIs are eligible and can make a contribution under the NPS scheme. Thus, the minimum age of joining NPS is 18 years.
Minimum and Maximum Contribution: To encourage more people to join the NPS, PFRDA has substantially lowered the minimum annual contribution to Rs 1,000 to keep the account active. Earlier, a subscriber had to contribute at least Rs 6,000 in a financial year (April-March) to keep the (Tier-1) account active. However, there is no ceiling on the amount one can invest in NPS. In case of Tier-II account, PFRDA has waived the requirement of annual minimum contribution of Rs 250 and the minimum balance of Rs 2,000 at the end of a fiscal year.
One-Time Portability Allowed: In a bid to allow individuals to choose between the Employees’ Provident Fund (EPF) and the National Pension System (NPS) as well as facilitate transfer from a recognized provident fund to NPS, the government has also provided an exemption from taxation to one-time portability from a recognized provident fund to the NPS.
Rate of return: Since the contributions made under the NPS scheme are market-linked, the rate of return varies from 9% to 12% currently.
Tax benefit: NPS subscribers can avail tax benefits by doing additional contribution of Rs 50000, which is over and above the limit of Section 80C, that is Rs 1.5 lakh. This means that you can avail a maximum deduction of Rs 2 lakh under Section 80C and 80CCD.