NPS: The Smart Way to Plan Retirement and Reduce Your Tax for FY 2024-25

This is the time to give declarations to your employers for claiming the Income Tax Deductions for Financial Year 2024-25. In this article, we will discuss about the tax deductions that you will get if you invest in the National Pension Scheme.

What is NPS?

According to the Pension Funds Regulatory and Development Authority (PFRDA), the National Pension Scheme helps people to save money for their retirement. Any age group from 18 to 70 years can join the NPS program. The National Pension Scheme (NPS) is open to both government and private employees.

The scheme allows people to invest in a pension account regularly while they are working to save after their retirement. You can withdraw a portion of your saved money as a lump sum. The rest will given to you as a monthly pension to help you after you stop working.

Who is Eligible to Invest in NPS?

It is a good option for all those who are willing to save for retirement in advance and wish to invest their money in a low-risk scheme. A regular pension at the time of your retirement will be a great help, especially for those people who retire from private-sector jobs.

Investing in a plan like this can improve your life after retirement. It is also a better option for salaried individuals who want to take full advantage of the 80C tax deductions.

Tax Benefits

There is a tax deduction of up to Rs. 1,50,000 for your own contribution to the NPS, which is covered under Section 80C. You can also get an extra tax deduction of Rs. 50,000 under Section 80CCD (1B) for contributing to NPS, Hence, the scheme gives a tax benefit of up to Rs. 2 lakh. The employer’s contribution to the NPS is covered under Section 80CCD(2) of the Income Tax Act.

How to Invest in NPS?

To open an NPS account offline, an individual needs to find a PoP (Point of Presence), which could be a bank or other authorized centre. For that go to your nearest PoP, collect the subscriber form and submit it with your KYC documents. If you’re already KYC-verified with that bank, you can skip this step.

And for online which is a more easy way to open an NPS account in less than an hour. After linking it through your PAN, Adhaar and mobile number. You will receive an OTP number to verify through your mobile phone. After receiving the OTP code, you will get a permanent retirement account number (PRAN), which provides you with a credential to log onto NPS.

NPS Vatsalya Scheme

The Budget 2024-25 has introduced a new scheme called: NPS Vatsalya, under which parents can open an NPS account for their minor children. They can deposit money in the account every month or year till the child attains the age of 18 years. After attaining the age of 18 years, the child can operate the account on his own by converting it into a regular NPS account.

NPS Taxation Withdrawal

Partial withdrawal from NPS account

Eligible for tax exemption on the amount withdrawn upto 25% of the self contribution, on such terms and conditions as may be specified by PFRDA under section 10(12B) of Income Tax.

Tax benefit on purchase of Annuity

Eligible for tax exemption on purchase of annuity upon attaining the age of 60 or superannuation under section 80CCD(5). However, the subsequent income received from annuity is subject to tax under section 80CCD(3).

Tax benefit on lump sum withdrawal

Eligible for tax exemption on lumpsum withdrawal of 60% of accumulated pension wealth upon attaining the age of 60 or superannuation under section 10(12A) of Income Tax.

Death of Assessee

The amount received by the nominee, on the death of the assessee, shall not be deemed to be the income of the nominee on account of closure or his opting out of the pension scheme