- NPS Overview: Launched on January 1, 2004, NPS helps individuals save for retirement.
- Higher Tax Deductions: Employer contributions increased to 14%, allowing extra deductions for employees.
- Updated Withdrawal Rules: Up to 60% of the corpus can be withdrawn tax-free; 40% must go toward an annuity.
- Investment Changes: Maximum equity exposure increased to 75% until age 60; tier-2 accounts can now invest fully in equities.
- D-Remit Facility: Same-day NAV access for contributions enhances returns.
- Systematic Withdrawals: Subscribers can gradually withdraw funds between ages 60 and 75.
October 1 is celebrated as National Pension System (NPS) Diwas, highlighting the importance of this retirement savings plan. Launched on January 1, 2004, the NPS encourages individuals to save for their retirement while working, helping secure their financial future. As of now, NPS assets have grown to Rs 2.76 lakh crore, thanks to 58 lakh non-government subscribers.
Recent Changes in NPS:
Increased Tax Deductions
In the Union Budget 2024, the limit for employer contributions to the NPS was raised from 10% to 14% of an employee’s salary. Employees can now claim an additional deduction of up to 4% of their basic salary.
Withdrawal Rules:
Subscribers can now withdraw 60% of their NPS corpus tax-free upon retirement. The remaining 40% must be used to purchase an annuity plan, which will be taxed during payout. If the total corpus exceeds Rs 5 lakh, the annuity purchase remains tax-free, but payouts will be taxed based on the individual’s income bracket.
Investment Allocation:
Individuals can invest up to 75% in equities until they turn 60, allowing for better growth potential. This change enables subscribers to maintain a higher equity exposure during their working years.
NPS offers two investment choices: ‘Active’, where subscribers can choose their asset allocation (equity, debt, and alternative investment funds), and ‘Auto’, which automatically adjusts the allocation based on the subscriber’s age.
Tier-2 Accounts:
The equity allocation limit for tier-2 NPS accounts has increased from 75% to 100%, providing investors with enhanced growth opportunities.
Direct Remittance Facility
The new Direct Remittance (D-Remit) facility allows NPS subscribers to access the same-day Net Asset Value (NAV) for their investments. Contributions made to Trustee Bank before 9:30 am will be invested the same day, boosting returns. Subscribers can also set up recurring auto-debit payments- monthly, quarterly, or half-yearly—to help grow their retirement savings.
Systematic Withdrawals
Starting February 2024, subscribers can opt for systematic lumpsum withdrawals (SLW), allowing them to withdraw up to 60% of their NPS corpus gradually between ages 60 and 75, ensuring their funds remain invested longer.
