NPS – National Pension Scheme

The National Pension System (NPS) is a retirement savings scheme introduced by the Government of India in 2004. It is a defined contribution pension system, which means that the pension amount received by the subscriber is based on the contributions made by the subscriber and the investment returns earned on those contributions.

Here are some key features of NPS in India:

1. Eligibility: NPS is available to all citizens of India between the ages of 18 and 65. It is also available to non-resident Indians (NRIs) and persons of Indian origin (PIOs) on a voluntary basis.
2. Types of accounts: There are two types of NPS accounts – Tier 1 and Tier 2. Tier 1 account is a mandatory account for all subscribers and is designed for long-term retirement savings. Tier 2 account is a voluntary account that can be opened only by those who have an active Tier 1 account. It is a flexible investment account that allows subscribers to make withdrawals as and when required.
3. Investment options: Subscribers can choose from three types of investment options – Auto Choice, Active Choice, and Corporate Choice. Auto Choice is the default option, which invests the subscriber’s funds in a pre-determined mix of equity, corporate bonds, and government securities, based on the subscriber’s age. Active Choice allows the subscriber to choose their own asset allocation mix, based on their risk appetite and investment goals. Corporate Choice is available to corporate subscribers and allows them to choose from a range of fund managers.
4. Tax benefits: NPS offers tax benefits under Section 80C of the Income Tax Act, where subscribers can claim a deduction of up to Rs. 1.5 lakh for their contributions to NPS. Additionally, subscribers can claim an additional tax deduction of up to Rs. 50,000 under Section 80CCD(1B).
5. Withdrawal options: Subscribers can withdraw their NPS funds only at the age of 60, or on reaching the age of 58, subject to certain conditions. At the time of retirement, subscribers can withdraw up to 60% of their accumulated NPS corpus as a lump sum, and the remaining 40% must be used to purchase an annuity plan.

Corporate NPS

Corporate NPS is a version of the National Pension System (NPS) that is specifically designed for employees of corporate organizations. It allows employers to offer their employees an additional retirement benefit, over and above their regular employee benefits.

Here are some key features of Corporate NPS:

1. Employer contribution: Corporate NPS allows employers to make contributions to their employees’ NPS accounts. The employer contribution can be up to 10% of the employee’s basic salary and dearness allowance (DA).
2. Employee contribution: Employees can also make contributions to their NPS account through salary deductions. The minimum contribution for Tier 1 account is Rs. 1,000 per year, and for Tier 2 account is Rs. 250 per contribution.
3. Investment options: Corporate NPS offers the same investment options as regular NPS, which includes Auto Choice, Active Choice, and Corporate Choice. Employees can choose their investment option based on their risk appetite and investment goals.
4. Tax benefits: Like regular NPS, Corporate NPS also offers tax benefits under Section 80C of the Income Tax Act. Both employee and employer contributions to NPS are eligible for tax deductions up to a maximum of Rs. 1.5 lakh. Additionally, an additional tax deduction of up to Rs. 50,000 is available under Section 80CCD(1B).
5. Portability: Employees can carry their NPS account with them even if they leave their current employer. This means that they can continue to make contributions to their account and build their retirement corpus, even if they switch jobs.
6. Exit options: Employees can exit from Corporate NPS either at the time of retirement or before retirement. If an employee exits before retirement, he/she can withdraw up to 20% of the accumulated corpus as a lump sum, and the remaining 80% must be used to purchase an annuity plan.

Corporate NPS is a great retirement benefit for employees as it offers a long-term investment horizon, tax benefits, and flexibility in investment options. It also allows employers to attract and retain talent by offering an additional retirement benefit.