National Pension System

For the generic concept, see National pension.

National Pension System
AbbreviationNPS
PredecessorOld Pension Scheme
FormationJanuary 1, 2004; 20 years ago (2004-01-01)
TypePension cum investment scheme launched by Government of India
Legal statusRegulated by Pension Fund Regulatory and Development Authority
PurposeProvide defined-contribution based pension for retirees and extend old age security coverage to all citizens
HeadquartersNew Delhi
Location
  • NPS Trust; 14th Floor, IFCI Tower, 61, Nehru Place, New Delhi, Delhi 110019
Products
  • NPS-Central Govt.
  • NPS-State Govt.
  • NPS-Corporate Sector
  • NPS-All Citizens of India (since May 1, 2009; 15 years ago (2009-05-01))
  • NPS Lite (since April 1, 2010; 14 years ago (2010-04-01))
  • NPS Swavalamban and
  • Atal Pension Yojana (APY) (since June 1, 2015; 9 years ago (2015-06-01))
Membership (30 April 2023)
6,35,43,628 Subscribers
Increase ₹898,954 crore (US$110 billion) (April 2023)
Government Sector Subscribers (April 2023)
  • Union Govt Employees 24,06,216
  • State Govt Employees 61,19,900
Private Sector Subscribers (April 2023)
  • Corporate Employees 17,14,011
  • Unorganized 29,83,484
Other Subscribers (April 2023)
  • NPS Swavalamban 41,73,888
  • Atal Pension Yojana 4,61,46,129
Parent organization
NPS Trust
Affiliations
  • Central Record Keeping Agency (CRA)
  • Pension Funds (PFs)
  • Trustee Bank (TB)
  • Points of Presence (PoPs)
  • Custodian
  • Retirement Advisor
  • Annuity Service Provider
Websitehttps://npstrust.org.in/
Department of Financial Services, Ministry of Finance - Government of India

The National Pension System (NPS) is a defined-contribution pension system in India regulated by the Pension Fund Regulatory and Development Authority (PFRDA) which is under the jurisdiction of the Ministry of Finance of the Government of India.[1] National Pension System Trust (NPS Trust) was established by PFRDA as per the provisions of the Indian Trusts Act of 1882 to take care of the assets and funds under this scheme for the best interest of the subscriber.[2]

NPS Trust is the registered owner of all assets under the NPS architecture which is held for the benefit of the subscribers under NPS. The securities are purchased by Pension Funds on behalf of, and in the name of the Trustees, however individual NPS subscribers remain the beneficial owner of the securities, assets, and funds. NPS Trust, under the NPS Trust regulations, is responsible for monitoring the operational and functional activities of NPS intermediaries’ viz. custodian, Pension Funds, Trustee Bank, Central Recordkeeping Agency, Point of Presence, Aggregators, and of IRDAI registered Annuity Service Providers (empanelled with PFRDA) and also for providing directions/advisory to PF(s) for protecting the interest of subscribers, ensuring compliance through an audit by Independent Auditors, and Performance review of Pension Funds etc.

National Pension System, like PPF and EPF, is an EEE (Exempt-Exempt-Exempt) instrument in India where the entire corpus escapes tax at maturity and the entire pension withdrawal amount is tax-free.[3]

The New Pension Scheme was implemented with the decision of the Union Government to replace the Old Pension Scheme which had defined-benefit pensions for all its employees. Notification No. 5/7/2003-ECB issued by the Ministry of Finance (Department of Economic Affairs) in a Press Release dated 22 December 2003 mandated NPS for all new recruits (except armed forces) joining government services from 1 January 2004[4] While the scheme was initially designed for government employees only, it was opened up for all citizens of India between the age of 18 and 65 in 2009, for OCI card holders and PIO's in October 2019.[5] On 26 August 2021, PFRDA increased the entry age for the National Pension System (NPS) from 65 years to 70 years. As per the revised norms, any Indian Citizen, resident or non-resident, and Overseas Citizen of India (OCI) between the age of 18–70 years can join NPS and continue or defer their NPS Account up to the age of 75 years.[6] It is administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA).[7][8][9][10]

On 10 December 2018, the Government of India made NPS an entirely tax-free instrument in India where the entire corpus escapes tax at maturity; the 40% annuity also became tax-free.[11] Any individual who is a subscriber of NPS can claim tax benefit for Tier-I account under Sec 80 CCD (1) within the overall ceiling of ₹1.5 lakhs under Sec 80 C of Income Tax Act. 1961.[12] An additional deduction for investment up to ₹50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B).[13][7][8][9] The changes in NPS was notified through changes in The Income-tax Act, 1961, during the 2019 Union budget of India.[14] There is no tax benefit on investment towards Tier II NPS Account. NPS is limited EEE, to the extent of 60%.[15] 40% has to be compulsorily used to purchase an annuity, which is taxable at the applicable tax slab.[10] In 2021, withdrawal rules at the time of maturity was changed, and a person can withdraw entire NPS corpus lump sum if it is Rs 5 lakh or less, but 40% will be taxable.[16][17]

Contributions to NPS receive tax exemptions under Section 80C, Section 80CCC, and Section 80CCD(1) of the Income Tax Act. Starting from 2016, an additional tax benefit of Rs 50,000 under Section 80CCD(1b) is provided under NPS, which is over the ₹1.5 lakh exemption of Section 80C.[18][19][20] Private fund managers are important parts of NPS.[21][22][23] NPS is considered one of the best tax saving instruments after 40% of the corpus was made tax-free at the time of maturity and it is ranked just below equity-linked savings scheme (ELSS).[24]

  1. ^ "How to generate a monthly pension of Rs.1 lakh from NPS?". 14 March 2023. Archived from the original on 18 August 2024. Retrieved 6 July 2023.
  2. ^ "What is National Pension System?". npscra.nsdl.co.in. Protean eGov Technologies Limited. Archived from the original on 21 April 2023. Retrieved 20 February 2023.
  3. ^ Prasad, Gireesh Chandra (10 December 2018). "Govt brings NPS on a par with PF, makes it tax-free". mint. Archived from the original on 10 December 2018. Retrieved 10 December 2018.
  4. ^ "Reversion to old pension scheme". Ministry of Personnel, Public Grievances & Pensions. New Delhi: Government of India. Press Information Bureau. 19 July 2018. Archived from the original on 20 February 2023. Retrieved 20 February 2023.
  5. ^ "National Pension System - Retirement Plan for All". National Portal of India. Archived from the original on 22 April 2021. Retrieved 12 July 2018.
  6. ^ "Subject: Increase of Entry Age up to 70 Years under NPS" (PDF). 26 August 2021. Archived (PDF) from the original on 6 September 2021. Retrieved 7 September 2021.
  7. ^ a b Nathan, Narendra (28 November 2016). "How good is the recently revamped NPS?". The Economic Times. Archived from the original on 7 September 2021. Retrieved 7 September 2021.
  8. ^ a b Motiani, Preeti (29 December 2016). "NPS: Now you can open a NPS account completely online via Aadhar without sending physical documents - The Economic Times". The Economic Times. Archived from the original on 1 January 2017. Retrieved 17 January 2017.
  9. ^ a b "Tax parity for NPS and EPF members is a welcome step - The Economic Times". The Economic Times. 7 January 2017. Archived from the original on 19 April 2017. Retrieved 17 January 2017.
  10. ^ a b "Budget 2017: Arun Jaitley likely to make National Pension system totally tax-free". FinancialExpress.com. 16 January 2017. Archived from the original on 5 September 2017. Retrieved 17 September 2017.
  11. ^ "Streamlining of National Pension System (NPS)".
  12. ^ "npscra tax benefits". Archived from the original on 12 November 2020. Retrieved 3 January 2022.
  13. ^ Staff Writer (10 December 2018). "NPS withdrawal made tax-free like PPF, EPF". mint. Archived from the original on 10 December 2018. Retrieved 10 December 2018.
  14. ^ Saleem, Shaikh Zoaib (12 December 2018). "Tax treatment of NPS set to change". mint. Archived from the original on 12 December 2018. Retrieved 12 December 2018.
  15. ^ "Scrap the NPS annuity: Makes more sense to go for systematic withdrawal plan". 12 December 2018. Archived from the original on 12 December 2018. Retrieved 12 December 2018.
  16. ^ "You can withdraw entire NPS corpus lumpsum if Rs 5 lakh or less but 40% will be taxable". The Economic Times. 24 November 2022. Archived from the original on 7 July 2023. Retrieved 6 July 2023.
  17. ^ "PFRDA permits withdrawal of NPS corpus of Rs 5 lakh without buying annuity". The Economic Times. 17 June 2021. Archived from the original on 7 July 2023. Retrieved 6 July 2023.
  18. ^ "10 things Arun Jaitley can do to make it a Budget for the middle class". The Economic Times. 17 September 2017. Archived from the original on 10 September 2017. Retrieved 17 September 2017.
  19. ^ "Opinion: 5-step plan to make NPS work". The Economic Times. 28 November 2016. Archived from the original on 7 September 2021. Retrieved 7 September 2021.
  20. ^ "Salaried Vaz can cut tax outgo by investing in NPS". The Economic Times. 17 September 2017. Archived from the original on 10 September 2017. Retrieved 17 September 2017.
  21. ^ Bhaskaran, Deepti (27 November 2016). "Time to up your equity investment in NPS?". mint. Archived from the original on 22 October 2020. Retrieved 7 September 2021.
  22. ^ Nathan, Narendra (29 December 2016). "NPS outshines MFs, benchmark indices in 2016 - The Economic Times". The Economic Times. Archived from the original on 31 December 2016. Retrieved 17 January 2017.
  23. ^ "How to change the scheme preference in NPS". The Economic Times. 17 September 2017. Archived from the original on 10 September 2017. Retrieved 17 September 2017.
  24. ^ Zaidi, Babar (30 January 2017). "Income Tax saving: Choose the best tax saving instrument for you". The Economic Times. Archived from the original on 18 August 2024. Retrieved 7 September 2021.