What is National Pension System?

Created On: 26 Oct 2015 8:54 AM IST

What is National Pension System. The Pension Fund Regulatory and Development Authority will pitch for tax exemption status at the withdrawal stage under its National Pension System (NPS) product to further expand its subscriber base, a top official has said.

The Pension Fund Regulatory and Development Authority will pitch for tax exemption status at the withdrawal stage under its National Pension System (NPS) product to further expand its subscriber base, a top official has said.

Not having tax exempt status at the withdrawal stage is a clear dampener for NPS. Presently, the tax treatment for contribution made in Tier I account is Exempted-Exempted-Taxed (EET), which is the amount contributed, is entitled for deduction from gross total income up to Rs one lakh (along with other prescribed investments) as per section 80C. The appreciation accrued on the contribution and the amount used by the subscriber to buy the annuity is not taxable. Only the amount withdrawn by the subscriber after the age of 60 is taxable.

All Indians between the age of 18 and 60 years as on the date of submission of application to Point of Presence (POP)/Point of Presence-Service Provider (POP-SP) can join NPS. Each subscriber is identified by a unique number and has a separate PRAN which is portable. While the employee contribution up to 10% of basic plus dearness allowance (DA) is eligible for deduction under Section 80CCD within the Rs 1 lakh limit, the employer's contribution up to 10% of basic plus DA is eligible for deduction under Section 80CCE over and above the Rs 1 lakh limit.

The NPS Scheme offers two accounts: Tier I account – it is also known as Pension Account. Withdrawal from this account is restricted till the subscriber attains the age 60 years. Minimum yearly contribution requirement in this account is Rs 6, 000; and Tier II account – it is a normal investment account. Withdrawal from this account can be done as per the need of the subscriber. Minimum yearly contribution requirement in this account is Rs 250. An active Tier I account is mandatory for opening Tier II account.