Future Planning with NPS – How is it beneficial for its subscribers? 

Planning for a financially stable retirement is one key aspect of investing. The Government of India introduced NPS, ensuring its subscribers can enjoy the golden years of their lives without any financial stress or worry. It offers various retirement benefits that we’ll explore in this blog. 

How does the National Pension System Operate? 

The National Pension System is a voluntary retirement planning scheme for every citizen of India between the ages of 18 and 70. It is designed to help its subscribers accumulate a retirement corpus. The NPS retirement plan invests in market-linked securities and aims to grow investors’ savings. 

NPS Retirement Benefits 

• Tax Benefit: Contributions to the NPS account up to ₹1.5 lakhs are eligible for tax deductions under the Income Tax Section 80 (C). There is an additional tax benefit of ₹50,000 under the Income Tax Section 80 CCD (1B), which is over and above Section 80 (C). 
• Investment Freedom:  NPS doesn’t pressurize its subscribers. It gives them freedom to choose their contribution amount. A minimum contribution of ₹1,000 in the year is necessary to keep the NPS account active. 
• Fund Managers: NPS subscribers can choose from various Pension Fund Managers (PFMs). These PFMs manage the investment portfolio. NPS subscribers can handle their accounts from anywhere, regardless of the selected fund manager. 
• Maturity: At the time of maturity, an NPS subscriber can withdraw the entire accumulated corpus if it is less than ₹5 lakh. If it’s more than 5 lakhs, then the subscriber can withdraw up to 60% of the accumulated corpus that is solely tax-free. The remaining 40% is used to buy annuities to receive a regular pension. 
• Portability: Any NPS account holder can manage their accounts from anywhere in India. Their change in job, location, or place won’t affect their contributions or potential returns. 
• Potential Returns: NPS invests in market-linked securities such as equities, corporate bonds, government securities, and AIFs. It has more potential for giving returns than traditional retirement plans such as FD or PPFs. 

Click here to learn how to save taxes with NPS. 

NPS Withdrawal Rules 

Withdrawal rules are essential for individuals looking to secure their financial future.  There are certain withdrawal guidelines in Tier I and Tier II NPS accounts, respectively. 

Tier I Account Withdrawal Rules: An NPS subscriber becomes eligible for partial withdrawal after maintaining the account for at least three years. They can withdraw up to 25% of their contributions. Withdrawals are allowed only for specific reasons such as higher education, marriage, critical illness, or purchasing or building a house. 

Upon reaching the age of 60, a subscriber can withdraw up to 60% of the accumulated corpus tax-free. The remaining 40% must be utilized to purchase an annuity, ensuring a steady stream of pension income.

If the total corpus at the time of retirement is ₹5 lakhs or less, the subscriber is allowed to withdraw the full amount without the obligation to buy an annuity.

Tier-2 Account Withdrawal Rules: It offers more liquidity and flexibility. Unlike Tier-1, there is no lock-in period, allowing subscribers to withdraw funds at any time without any conditions or penalties.

Final Thoughts

Retirement planning is one of the key aspects to securing your future in your golden years. Here, NPS comes with numerous benefits, from potential returns to portability to freedom of investment, aiming to provide peace of mind in your retirement years.