National Pension System (NPS) benefits: Get Rs 1 lakh per month pension, save tax in Income Tax return (ITR) filing; here's how

National Pension System (NPS) is arguably the best retirement planning tool for youths who have just entered the job market. Every NPS subscriber is allotted a Permanent Retirement Account Number (PRAN). NPS provides old-age income with reasonable market-based returns. Under NPS, the pension wealth, which accumulates over a period of time till retirement grows with a compounding effect. "The all-in-costs of the institutional architecture of NPS are among the lowest in the world," Union minister Shiv Pratap Shukla recently told the Parliament. He further said, the contribution to NPS Tier-I account is eligible for tax deduction under the Income Tax Act, 1961. An additional tax rebate of Rs 50,000 is also allowed for contributions made to NPS Tier-I under Section 80CCD (1B) of the Income Tax Act, 1961.  

By investing a small portion of your salary every month in the National Pension System (NPS) till retirement, you can secure your old age and save a lot of tax while filing Income Tax Return (ITR) every year. Suppose you start investing just Rs 1000 per month at the age of 25, you can be assured of up to Rs 12,000 per month pension (at an expected 8% rate of interest) after retirement. The final amount may be even higher. 

At the same rate, if you invest Rs 2000 per month, you can be assured of up to Rs 24,000 pension per month. Similarly, for Rs 3000/month, you can get up to Rs 36000 per month pension. By investing Rs 5000 per month from the age of 25, you can be assured of over Rs 60,000 per month.  By investing Rs 8500 per month, you can be assured of pension up to 1 lakh per month.  An investment of Rs 10,000 per month, can get you around Rs 1.20 lakh per month pension upon retirement. 

As per Pension Fund Regulatory and Development Authority (PFRDA), "National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life."

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How money grows under NPS

Under NPS, investments made by individuals are pooled in a pension fund. This is invested by PFRDA-regulated professional fund managers into diversified portfolios comprising of government bonds, bills, corporate debentures and shares. Over a period of time, these contributions grow and accumulate as per the returns earned on the investment. 

The currently authorised pension fund managers are:

- ICICI Prudential Pension Fund
- LIC Pension Fund
- Kotak Mahindra Pension Fund
- Reliance Capital Pension Fund
- SBI Pension Fund
- UTI Retirement Solutions Pension Fund LIC Pension Fund
- HDFC Pension Management Company
- DSP Blackrock Pension Fund Managers

Any citizen of India, whether resident or non-resident, aged between 18 – 65 years as on the date of submission of his/her application, can join. Individuals can join either on their own or as employee-employer group(s) (corporates) subject to submission of all required information and Know your customer (KYC) documentation. 

Two sub-accounts are provided under NPS.

Tier I: This is a non-withdrawable retirement account which can be withdrawn only upon meeting the exit conditions prescribed under NPS. This is mandatory.

Tier-II account: This is a voluntary savings facility available as an add-on to any Tier-1 account holder. Subscribers will be free to withdraw their savings from
this account whenever they want. 

Income Tax benefits for NPS subscribers

Individuals who are employed and contributing to NPS would enjoy tax benefits on their own contributions as well as their employer’s contribution (as per PFRDA)

(a) Employee’s own contribution - Eligible for tax deduction up to 10% of Salary (Basic + DA) under Section 80 CCD(1) within the overall ceiling of Rs 1 lakh under Sec 80 CCE.

(b) Employer’s contribution – The employee is eligible for tax deduction up to 10% of Salary (Basic + DA) contributed by employer under Sec 80 CCC(2) over and above the limit of Rs. 1 lac provided under Sec 80 CCE.

Tax benefit for self-employed: Eligible for tax deduction up to 10 % of gross income under Sec 80 CCD (1) with in the overall ceiling of Rs. 1 lac under Sec 80 CCE.