With this scheme, at regular intervals, investors can invest in a pension account during the course of his/her employment. The scheme is portable across jobs and locations, and also comes with tax benefits under Section 80C and Section 80CCD, of the Income Tax Act.
Among the most popular saving, investment and retirement schemes in India are National Pension System (NPS), Employees’ Provident Fund (EPF) and Public Provident Fund (PPF), although while some are only for the salaried, some are optional and can be opted by anyone. For instance, the Provident Fund is compulsory for the salaried, for which contribution has to be made by both the employer and the employee.
NPS, on the other hand, is for low-risk appetite individuals planning for their retirement. This pension program is for both the public and private sector employees. PFRDA for the benefit of its subscribers had some time back changed the rules for withdrawal of NPS. Since August 10, 2017, the minimum period required for partial withdrawal has been reduced to 3 years from the date of joining, from the mandatory 10 years under Tier-I account. The minimum gap of 5 years required between 2 partial withdrawals has also been removed.
Benefits of NPS
On a voluntary basis, the PFRDA made NPS open to all Indian citizens, which was earlier limited to only the Central Government employees. With this scheme, at regular intervals, investors can invest in a pension account during the course of his/her employment. The scheme, similar to EPF, is portable across jobs and locations, and also comes with tax benefits under Section 80C and Section 80CCD, of the Income Tax Act.
A portion of the NPS goes to equities, because of which it offers returns higher than other traditional tax-saving investments like the PPF. Investors also get the option to change their fund manager, in case they are not happy with the performance of the fund.
Note that, after retirement, only a certain percentage of the corpus can be taken out by the investor. The rest of the amount the NPS account holder will receive as a monthly pension, post his/her retirement. Investors can also make partial withdrawals. However, that comes with certain criteria.
For partial withdrawal, the minimum period required to be depositing in an NPS account is 3 years from the date of joining. Investors are eligible for 3 partial withdrawals, but that should not cross 25 per cent of the contribution made for each time.
Partial withdrawal can be made under certain criteria only. For instance, in the case of children’s higher education and marriage, partial withdrawal can be made. Also, if the investor wants to purchase or construct a residential house or flat, he/she is eligible to make a partial withdrawal, given they do not already own a house other than ancestral property.
In case any critical illness or specified illness of a life-threatening nature – which requires hospitalization – occurs to either the investor, spouse, children or dependent parents, partial withdrawals can be made. Withdrawals are also permitted if needed to cover incidental and medical expenses due to disability or incapacitation suffered.
Additionally, if one wants to start a business or for any self-development activities, withdrawals can be made. However, for the Tier-II accounts, there is no restriction on withdrawals.