Tax benefits under NPS 2021

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Tax benefit under NPS for 2021
VINOD K AGRAWAL ASSOCIATES, CA
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What is NPS?

• NPS seeks to inculcate the habit of saving for
  retirement amongst the citizens. It is an attempt
  towards finding a sustainable solution to the
  problem of providing adequate retirement income
  to every citizen of India.

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Who regulates NPS?

• Pension fund Regulatory and Development
  Authority.
• Website https//www.pfrda.org.in/

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Who can open NPS?
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Where to they invest money?

• Under the NPS, individual savings are pooled in
  to a pension fund which are invested by
  professional fund managers as per the approved
  guidelines in to the diversified portfolios
  comprising of government bonds, bills, corporate
  debentures and shares. 

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Which NPS fund are available?
1. SBI Life Insurance Co. Ltd 2. Life Insurance
Corporation of India 3. Star Union Dai-ichi Life
Insurance Co. Ltd 4. ICICI Prudential Life
Insurance Co. Ltd 5. HDFC Life Insurance Co Ltd.
6. IndiaFirst Life Insurance Co Ltd 7.
Edelweiss Tokio Life Insurance Co. Ltd 8. Bajaj
Allianz Life Insurance Co Ltd. 9. Canara HSBC
Oriental bank of Commerce Life Insurance co Ltd.
10. Kotak Mahindra Life Insurance Co Ltd. 11.
Tata AIA Life Insurance Company Limited 12. Max
Life Insurance Company Limited 13. PNB Metlife
India Insurance Company Limited 14. Aditya Birla
SunLife Insurance Company Limited
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What documents are required?
PAN
Proof of Address
Proof of Bank Account
Photograph
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What is PRAN?

• Permanent Retirement Account Number
• PRAN is a unique identification number allotted
  to a subscriber for his/her Individual Pension
  Account opened under NPS. The PRAN remains
  unchanged even though the subscriber shifts
  employment or location.

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How much Pension will I receive?

• The amount of pension will depend on the amount
  of contributions made, returns on the investments
  and the portion of corpus utilised by the
  subscriber for purchasing annuity plan from any
  of the Annuity Service Providers empanelled with
  PFRDA.
• Under NPS, there is no implicit or explicit
  assurance of benefit and the investments are
  subject to market conditions.
• To get the pension calculator visit
  http//www.npstrust.org.in/content/pension-calcula
  tor

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What happens if you dont make the minimum
contribution?

• If minimum contribution is not received, the
  account is categorized as frozen and will get
  activated upon making a contribution to the
  account.

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Types of NPS account?

• Tier-I is the Individual Pension Account, which
  is the default pension account having all the tax
  incentives under Income Tax Act.
• Tier-II is an optional investment account
  available to a subscriber having an active Tier-I
  account. This account has no withdrawal
  restrictions and tax benefits.

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Section 80CCD (1)

• First limit for NPS deduction
• 10 of Basic DA in case employed
• 20 of gross income in case self-employed
• Second limit
• 80C 80CCD(1) Maximum Rs 1,50,000

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Section 80CCD (1B)

• Rs 50,000
• This is additional deduction, over and above 1.50
  limit.

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Section 80CCD (2)

• Contribution received from Employer is also
  allowed as deduction under this section.
• Employer should directly contribute to NPS for
  claiming deduction.
• Maximum 10 of Basic DA

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Partial Withdrawal Rules

• Tier I after completion of 3 years subscriber
  can withdraw 25 of his own contributions for
  specific reasons - illness, disability, education
  or marriage of children, purchasing property,
  starting a new venture. Max 3 times allowed.
• Withdrawal from NPS Tier-II account is permitted
  at any point of time, without any restrictions.

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Taxation - Partial Withdrawal

• EXEMPT

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Tier I Premature Withdrawal

• Allowed after 10 years
• Subscriber can withdraw maximum 20 of the corpus
  as lumpsum and minimum 80 of the corpus has to
  be utilized for purchasing an annuity plan.
• However, if the accumulated corpus is less than
  Rs 2.5 lakh, the entire corpus is paid as lumpsum
  to the subscriber.

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Tier I Normal Withdrawal

• on completion of 60 years of age
• subscriber can withdraw maximum 60 of the corpus
  as lumpsum
• minimum 40 of the corpus has to be utilized for
  purchasing an annuity plan for receiving the
  pension.
• If the accumulated corpus is less than Rs 5
  lakhs, the entire corpus is paid as lumpsum to
  the subscriber

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Taxation - Closure

• Exempt upto 60
• To save tax on balance 40 invest in annuity
  plan.
• Pension received under Annuity plan is taxable as
  per slab rate.
• Amount received by Nominee on closure of NPS due
  to death is fully exempt.

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Hope it helps!
VINOD K AGRAWAL ASSOCIATES, CA