Our Funds
Related Links
Tools View All
Knowledge Hub Explore
Investment Frameworks
Insights View All
Obsessed with helping you invest better. Trusted by 50L+ investors*
Services
If you are a first-time investor or new to DSP, Get started here
New to IFAXpress? Sign up
Uh-oh! No results found. We're on it!
Listening ...
This will help us to improve and provide you a better experience.
What is NPS? Advantages, Tax Benefits & How to Open NPS Account
An investor education & awareness initiative.
Shekhar and Samrat sit on a park bench chatting after their daily morning walk. Both are in their 30s, married with children. Both men have their senior parents residing with them.
‘I feel so bad for my father. In spite of working for a lifetime, he is financially dependent on me. He feels bad asking me for money. To avoid embarrassing him, I have made a fixed deposit in his name where the interest is credited to his savings account to help him with his daily expenses,’ Shekhar confides in Samrat.
He continues, ‘I would never want to be in this situation. My financial advisor has suggested that I invest in the NPS to avoid being dependent on anyone during my retirement.’
Samrat’s interest is piqued. He asks, ‘What is the NPS?’
‘NPS stands for national pension system,’ replies Shekhar.
Samrat listens intently as Shekhar explains the NPS.
NPS is an investment plan which provides financial security and stability to individuals during their later stages of life. It is a voluntary plan; in other words, it’s not mandatory for every citizen to invest in it. Under this plan, you invest during your working life and receive a pension once you retire.
What is the eligibility criterion?
If you are a citizen of India and between 18 and 65 years of age, you are eligible to invest in the NPS. It doesn’t matter whether you are a resident or a non-resident Indian (NRI), but you need to comply with the know-your-customer (KYC) guidelines.
What are the advantages?
NPS offers the following benefits:
What are the disadvantages?
While NPS has a number of positive aspects, the following are aspects to watch out for:
Are there any tax benefits?
The NPS offers you multiple tax benefits under sections 80CCD (1), 80CCD (1B), and 80CCD (2).
Section 80CCD (1) offers a tax deduction of up to Rs 1.5 lakh on investment in the NPS. This is part of the tax deduction available under section 80C (tax benefits for investments made in provident funds (PFs), public provident funds (PPFs), life insurance, and national savings certificates (NSCs), among other instruments, and tuition fees and home loan principal).
Note: There is a maximum limit for investments in NPS. This is fixed at 10% of your basic salary, including dearness allowance, or 10% of your total gross income if you are a non-salaried individual. For example, if your basic salary and dearness allowance is, say, Rs 10 lakh, then the maximum amount you can invest in the NPS cannot exceed Rs 1 lakh.
Section 80CCD (1b) offers an additional tax deduction of up to Rs 50,000 on investment in the NPS. In other words, the investor can claim a tax deduction of up to Rs 2 lakh on investment in the NPS using both these sections. This is over and above the section 80C limit, which means you can claim up to Rs 1.5 lakh for your section 80C investments (including the NPS) and an additional amount up to Rs 50,000 for NPS contributions made in the financial year.
Section 80CCD (2) offers a tax deduction if your employer contributes to your NPS account. This deduction is over and above the two aforementioned deductions under sections 80C and 80CCD (1B).
Note: There is a maximum limit to the employer’s contribution eligible for a deduction, which is restricted to 10% of your salary (basic + dearness allowance). This deduction is over and above the deduction of Rs 2 lakh available under the above two sections.
What is the tax levied if one withdraws or exits from the plan? While 40% of the lump sum amount is tax-free in your hands, the monthly pension received from the annuity is taxable as per the income tax slab that applies to your total income. To avoid paying tax on the lump sum amount, you can purchase an annuity for 60% of the retirement corpus and take only 40% in a lump sum. For example, assume you have Rs 10 lakh in your NPS account at the time of maturity. You can withdraw 40% of the corpus tax-free (i.e. Rs 4 lakh). With the remaining Rs 6 lakh, you are required to buy an annuity and will receive a pension payment every month.
How to open an NPS account?
You can open an NPS account online. Visit nps.kfintech.com/registration/subscriberregistration, click on ‘Registration,’ fill in the online form, and provide your Aadhar number. You will receive a one-time password (OTP) after your registration via your Aadhar-registered mobile number. Using this password, you will fill in the rest of your application, make your investment, provide your nomination, and finalize other details. Eventually, you will receive your investment acknowledgment, which will include your permanent retirement account number (PRAN).
When Shekhar finishes explaining the NPS, Samrat says, ‘I am going to call my financial advisor to help me invest in the NPS today.’
The NPS is an attractive retirement investment plan. However, make your investment after consulting your financial advisor to ensure that this plan is suitable to your retirement needs.
Note: The tax structure given above is as per current Income Tax laws and may change in the future.
Key Takeaways
Disclaimer: All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (‘RMF’). For more info on KYC, RMF & procedure to lodge/redress complaints, visit dspim.com/IEID. This is an investor education & awareness initiative by DSP Mutual Fund.
Sign up for our newsletters.
Investor Relations Officer, DSP Asset Managers Private Limited, Natraj, Office Premises No.302,3rd Floor, M V Road Junction. W. E. Highway, Andheri(East), Mumbai-400069, Tel.:022-67178000.
Mutual fund investments are subject to market risks, read all scheme related documents carefully. © DSPAM 2024.
Any information regarding securities offerings, or references to securities offerings, that are contained on these pages do not constitute or form part of any offer of securities for sale or the solicitation of an offer to purchase securities in the United States or in any other jurisdiction where such offer may be restricted. The information in the coming pages is not intended for, and is not to be made available to, persons in the United States (being persons resident in the US, corporations, partnerships or other entities created or organized in or under the laws of the US or any person falling within the definition of the term "US Person" under the US Securities Act of 1933, as amended), wherever located. Any information regarding securities offerings, or references to securities offerings, that are contained on these pages do not constitute or form part of any offer of securities for sale or the solicitation of an offer to purchase securities in the United States or in any other jurisdiction where such offer may be restricted. In no event shall DSP Mutual Fund and / or its affiliates or any of their directors, officers and employees be liable for any special direct, indirect, special, incidental or consequential damages arising out of the use of information / opinion herein. The site, texts, images, designs, pictures, sounds, photographs, animation, and videos together with their layout and more generally all the items contained on this website are the sole property of DSP Asset Managers Pvt. Ltd. This site and all of the elements on this site are protected by Indian Law and by International copyright agreements concerning intellectual property. The content of this website must not be copied, modified, reproduced, distributed, transferred, edited or made accessible to third parties for any purposes whatsoever without obtaining prior permission from the owners of this website. *No. of unique investors who had invested with DSP at any time. ^Includes domestic AUM only, as on Dec 31, 2023 @ copyright DSPAM All rights reserved.
By submitting, I agree to receive a call from DSPAM for assistance.
We have received your query and will get back to you shortly.
Gain access to our latest articles on the world of investments.
Monthly update on all the information related to our funds.
Monthly insights on the economy and markets.
To help you our services, we would be grateful if yo could tell us why:
Mention reason
Describe reason
Update your preferences
The email address [email protected] has been removed from our mailing list. you will no longer hear from us.