The National Pension System (NPS) is an essential savings scheme for central government employees. All central government workers are required to open NPS accounts. NPS is governed by the PFRDA Act of 2013, as well as rules established by the Department of Financial Services and the PFRDA.
Rules For NPS Account Opening
When a central government employee joins the service, an NPS account is immediately established.
Employees must file an application form to the Drawing and Disbursing Officer (DDO) and Pay and Accounts Officer (PAO). When a subscriber enters the NPS, he or she receives a Permanent Retirement Account Number (PRAN), to which all contributions are credited. It serves as a one-of-a-kind identifying number for each NPS account.
Subscribers may access their accounts online, as well as via the NPS mobile app.
Investment Plans in NPS
An employee can contribute more than the mandatory limit of 10% to his or her NPS Tier I account.
However, there would be no matching contribution from the government for contributions over the 10% mandatory contribution. Employees have the option of selecting a sort of investment pattern, and pension funds are now available to government employees.
Exit and Withdrawal Rules of NPS
Employees can normally exit NPS when they reach superannuation or reach the age of 60. However, as per epr guidelines, he or she may exit from NPS before retirement while leaving service.
If the subscriber quits before reaching the age of 60, he or she must invest at least 80% of the accumulated balance in an annuity from a PFRDA-registered annuity service provider, with the remainder 20% withdrawn as a lump sum.
When an individual reaches the age of 60, he or she must invest at least 40% of the accumulated pension asset in Tier-1 to purchase an annuity from a PFRDA-registered Annuity service provider, with a maximum of 60% of the accumulated corpus in the Tier-1 account being released as a lump payment.
Members can also deposit the entire accumulated corpus in an annuity.
The employee, spouse, and dependent parents receive a lifetime pension from an annuity.
The Provision of Partial Withdrawal
There is a provision for partial withdrawals from NPS Tier-1 of up to 25% of employees' contributions.
There are certain reasons for partial withdrawal, such as child schooling, child marriage, treatment of a specific illness, and home construction or purchase. Partial withdrawals are permitted after three years of NPS subscription, with a maximum of three such withdrawals permitted during the entire NPS term.
Tax Benefits For NPS Account
Any individual who is an NPS subscriber can claim tax advantages under Section 80 CCD (1) up to a maximum of Rs 1.5 lakh under Section 80 CCE.
Under subsection 80CCD, NPS members are entitled to an extra deduction of up to Rs. 50,000 for investments in NPS (Tier I account). This is in addition to the Rs. 1.5 lakh deduction permitted under Section 80C of the Income Tax Act of 1961.
