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The National Pension Scheme (NPS) is one of India’s most popular retirement benefit plans. The Pension Fund Regulatory and Development Authority of India (PFRDA) is responsible for regulating the NPS scheme. Investing in this plan secures your retirement while offering tax benefits under Sections 80C and 80CCD. There is also a lock-in period with the NPS, but withdrawal is permittedunder certain circumstances. The NPS rules and regulations for government and non-government employees differ significantly. Here is everything you need to know about NPS if you work for the government.
NPS Account Opening Online Rule
If you are a Central Government employee, NPS is mandatory for you if you joined the service on or after 1st April 2004. However, this condition does not apply to you if you work under the armed forces. NPS is also mandatory for State Government employees (except those employed under the West Bengal government).
As soon as you join the service, your employer wants you to submit an NPS application form to the Pay and Accounts Officer (PAO) and Drawing and Disbursing Officer (DDO). The enrolmentis then processed through the nodal officer.
NPS Contribution for State Government Employees and Central Government
Government employees can contribute to online NPS at the rate of 10% of the salary plus dearness allowance. The employer will make a matching contribution in this case. However, the employer contributions rates have been revised and increased to 14%. The rate revision was made effective from 1st April 2019.
Benefits of NPS for Central Government Employees:
- Higher returns:
The salary you contribute towards NPS is invested in equity, alternative investment funds, corporate bonds, and government securities. It provides safer and better returns than any other scheme available due to the diversification of money in different asset types. The NPS interest rate can range between 9% and 12%.
- Tax benefits:
NPS allows you to claim tax advantage under section 80C of the Income Tax Act. You can claim tax exemptions of up to ₹1.5 lakhin a financial year.
NPS Withdrawal Rules:
Premature exit before the age of 60 years:
- If your accumulated corpus is equal to or less than ₹2.5 lakh, you will be provided with a lump sum payment.
- If you have an accumulated corpus of more than ₹2.5 lakh, you must invest at least 80% of it in an annuity plan. The remaining 20% will be paid in one single sum to you.
Normal exit after the age of 60 years:
- You are allowed to withdraw the lump sum amount if the accumulated corpus is less than or equal to ₹5 lakhs.
- In case the corpus is over ₹5 lakhs, you must invest at least 40% of it in an annuity plan. The remaining 60% will be paid as a lump sum.
To Sum It Up
NPS is mandatory for all government employees. In case you work in the private sector, you can also start contributing to NPS and enjoy the benefits of relatively safer returns.
