Income Tax deduction Under Section 80C allows deduction in respect of investment LIC, Housing loan principal repayment, Children education fee etc.) and Under Section 80CCC allows deduction in respect of contribution for contract of annuity for receiving pension offered by LIC or other insurers). Total deuction under both Section 80C and Section 80CCC
However, if a person wishes to claim deduction in excess of Rs. 150,000, he/she can avail the deduction of Rs. 50,000 over and above the Rs. 150,000 aforesaid through investing in the notified pension schemes u/s 80CCD. The notified schemes are governed by the National pension system trust
Opening an account with NPS provides a Permanent Retirement Account Number (PRAN), which is a unique number and it remains with the subscriber throughout his lifetime. The scheme is structured into two tiers:
1. Tier-I account:
This is the non-withdrawable permanent retirement account into which the regular contributions made by the subscriber are credited and invested as per the portfolio/fund manager chosen of the subscriber.
The additional deduction of Rs. 50,000/- is available only for contributions made to NPS Tier I accounts
2. Tier-II account:
This is a voluntary withdrawable account which is allowed only when there is an active Tier I account in the name of the subscriber. The withdrawals are permitted from this account as per the needs of the subscriber as and when required.
Contributions to Tier II accounts are not eligible to claim the deduction under Section 80CCD(1B)
There are a quite a few Pension fund managers offering to open NPS accounts with them. One can choose to open an NPS account with any of the Pension fund managers based on their historical performance.
- The money invested in NPS is managed by PFRDA-registered Pension Fund Managers.
- Currently, there are seven pension fund managers namely:
- ICICI Prudential Pension Fund,
- LIC Pension Fund,
- Kotak Mahindra Pension Fund,
- Aditya Birla Sun Life Pension Management Ltd.
- SBI Pension Fund,
- UTI Retirement Solutions Pension Fund,
- HDFC Pension Management Company, and
- One always has the option of changing the scheme and fund manager in the course of the investment.
Contribution to NPS
- One have to contribute a minimum of Rs 6,000 every year in his Tier-I account in a financial year
- One can contribute any amount over and above Rs. 6,000 according to his preference.
- Minimum amount per contribution is Rs. 500
Withdrawal from the NPS
At the age of 60,
– one can withdraw up to 60% of their accumulated wealth in their NPS account ( This lump-sum withdrawal is tax-free u/s 10(12A) of Income tax act, 1961) and
-the balance 40% needs to be compulsorily utilized for the purchase of annuity providing monthly pension schemes from one of the Annuity service providers empanelled by PFRDA namely Life Insurance Corporation of India, SBI Life Insurance, ICICI Prudential Life Insurance, Bajaj Allianz Life Insurance, Star Union Dai-ichi Life Insurance, Reliance Life Insurance, HDFC Standard Life Insurance
Thereafter, the annuity income that would arise in hands of the investor will be taxable.
One can choose to postpone the withdrawal till the age of 70.
Pre-mature withdrawal from the NPS
- One can also withdraw from his NPS account before maturity subject to a maximum of
25% of his erstwhile contribution. This is also subject to the fulfillment of the following conditions:- The Partial withdrawal shall be allowed for specific purposes such as higher education of children, marriage of children, purchase or construction of residential house or for treatment of specified diseases.
- Individual should have subscribed to NPS for at least 3 years.
- Maximum of 3 withdrawals during the entire tenure are allowed.
- Minimum gap of 5 years is required between the two withdrawals. However, this condition shall not apply in case of withdrawal for treatment of specified illness.
- This withdrawal amount is exempt from income tax u/s 10(12B) of the Income tax act, 1961.
- In case the assessee dies, and the nominee decides to close the NPS account, then the entire amount will be paid to the nominee and will be exempt from taxation
Exit from the scheme before retirement
- If a person decides to exit from the scheme before the age of 60, he will have to invest 80% of the accumulated wealth in an annuity scheme. The remaining 20% will be given to the person as a lump-sum payment
Choice of investment
- The NPS offers you two approaches to invest in your account:
-Active choice- Individual Funds (E, C and G Asset classes)
-Auto choice- Lifecycle Fund
Active choice – Individual Funds
- One will have the option to actively decide as to how your NPS pension wealth is to be invested in the following three options:
- E – “High return, High risk” – investments in predominantly equity market instruments
- C – “Medium return, Medium risk” – investments in predominantly fixed income bearing instruments
- G – “Low return, Low risk” – investments in purely fixed income instruments.
- He can choose to invest his entire pension wealth in C or G asset classes and upto a maximum of 50% in equity (Asset class E).
- NPS offers an easy option for those participants who do not have the required knowledge to manage their NPS investments. In case, he is unable/unwilling to exercise any choice, his funds will be invested in accordance with the Auto Choice option.
- In this option, the investments will be made in a life-cycle fund.
- Here, the fraction of funds invested across three asset classes will be determined by a pre-defined portfolio.
- At the lowest age of entry (18 years), the auto choice will entail investment of 50% of pension wealth in “E” Class, 30% in “C” Class and 20% in “G” Class. These ratios of investment will remain fixed for all contributions until the participant reaches the age of 36.
- From age 36 onwards, the weight in “E” and “C” asset class will decrease annually and the weight in “G” class will increase annually till it reaches 10% in “E”, 10% in “C” and 80% in “G” class at age 55
- One can approach any of the Points of Presence(POP) mentioned in the last page of the following document to invest in the NPS of their choice
https://npscra.nsdl.co.in/download/NEW_WELCOME_KIT396945283.pdf
- One can use the following pension calculator to estimate their pension needs
Performance of pension funds
-
The following chart describes the performances of the NPS schemes managed by the aforesaid pension fund managers as at 31st January, 2022
NPS SCHEME – A (Tier-I)
Particulars |
SBIPF |
LICPF |
UTIRSL |
ICICI PF |
KOTAK PF |
HDFC PF |
BIRLA PF |
|
Assets (Rs in crore ) |
30.13 |
6.46 |
4.85 |
16.28 |
4.94 |
72.12 |
1.75 |
|
Scheme Inception Date |
13-Oct-16 |
13-Oct-16 |
14-Oct-16 |
21-Nov-16 |
14-Oct-16 |
10-Oct-16 |
15-May-17 |
|
NAV |
31-Jan-22 |
16.3440 |
14.9161 |
13.8806 |
14.5779 |
14.5898 |
15.6399 |
13.4975 |
52 Week High |
16.4156 |
14.9444 |
14.0024 |
14.6681 |
14.6358 |
15.7397 |
13.6087 |
|
52 Week Low |
14.7967 |
13.8585 |
12.6347 |
13.2574 |
13.7308 |
14.2056 |
12.4324 |
|
RETU-RNS |
3 Months |
1.76% |
1.17% |
-0.13% |
2.95% |
1.95% |
2.93% |
3.38% |
6 Months |
4.41% |
3.35% |
3.35% |
5.51% |
3.61% |
5.87% |
5.90% |
|
1 Year |
8.65% |
5.88% |
7.25% |
8.37% |
6.10% |
9.51% |
8.49% |
|
2 Years |
12.50% |
7.51% |
5.66% |
6.93% |
6.73% |
8.82% |
6.14% |
|
3 Years |
11.67% |
8.54% |
5.94% |
8.56% |
9.18% |
10.18% |
6.26% |
|
5 Years |
NA |
NA |
NA |
NA |
NA |
NA |
NA |
|
Since Inception |
9.70% |
7.83% |
6.38% |
7.52% |
7.39% |
8.78% |
6.56% |
|
PORT-FOLIO |
Top 5 Holdings |
Embassy Office Parks Reit, Sbi Overnight Fund – Direct Plan, Power Grid Corporation Invit, 8.44% Indian Bank At 1 Perpetual Bonds Series Ii 2025, 8.75% Axis Bank Ltd Perpetual Bond |
7.72% Sbi Basel Iii Com-pliant Perpetual Bonds, Units Of Liquid Mutual Fund, 7.74% Sbi Unse-cured Perpetual Basel Iii Com-pliant At1 Bonds Series I, 8.50% Unsec. State Bank Of India Perpetual Basel Iii Bonds Call 22.11.20, 8.85% Hdfc Bank Ltd. Basel Iii Perp Bonds Series 1 Call 12.05.2022 |
8.50% Bob Basel Iii At1 Perp-etual 2025, 7.74% Sbi Basel Iii At1 Perp-etual 2025,8.25% Bob Basel Iii At1 Perp-etual 2025, 8.99% Bob Basel Iii At1 Perp-etual 2024, 8.75% Sbi Basel Iii At1 Perp-etual 2024 |
(1) 8.85% HDFC Bank Perpetual bond 2022(2) Powergrid Infrast-ructure Investment Trust(3) 9.56% SBI PPB 2023(4) 8.75% AXIS Bank Ltd Perpetual Bond 2022(5) Embassy Office Parks REIT |
7.72% SBI BASEL III AT1 BONDS PEPR 2026, 8.50% BOB PERP AT1 BOND (BASEL III) CALL DT 2025, Embassy Office Parks REIT, 9.55 Canara Bank Perpe-tual AT-1 Basel-III 2025, 8.85% HDFC Bank Perp-etual Tier-1 Bond 2022 |
8.50% SBI Bank Perpetual AT-1 SERIES II 2024 Embassy Office Parks REIT Mind space Buisness Parks REIT Power Grid Corpo-ration of India Ltd INVIT 8.75 SBI Bank Perpetual AT-1 2024 |
7.74%SBI Perpetual 2099(call 2025) Mind-space Business Parks REIT, Embassy Office Parks REIT, POWE-RGRID Infrast-ructure Inves-tment Trust, India Grid Trust – InvITs, |
Weigtage of top 5 Holdings,% |
47.66 |
77.98 |
83.21 |
42.17 |
52.93 |
47.66 |
77.67 |
|
Top 3 Sectors |
Monetary inter mediation of commercial banks, saving banks.postal,Real estate activities with own or leased property,Manage ment of mutual funds |
Banks, Units of Liquid Mutual Fund, Cash & Other Current Assets |
Banks |
1. Monetary inter mediation of commercial banks, saving banks, postal savings.2. Transmission of electric energy3. Real estate activities with own or leased property |
Monetary inter midia-tion of com bankReal Estate activities with own orTrans-mission of electric energy |
1) Monetary inter medi-ation of comm-ercial banks, saving banks. postal savings bank and discount houses2) Real estate activities with own or leased property3) Trans-mission of electric energy |
Bank & Finance
|
|
- To know more the fund performance, one can track the periodical return of the schemes in the following link https://www.npstrust.org.in/return-of-nps-scheme
Sources:
https://www.npscra.nsdl.co.in/index.php
https://incometaxindia.gov.in/pages/indiacode/income-tax-act.aspx
https://www.npstrust.org.in/sites/default/files/Scheme%20A1%20Jan%202022.pdf
Author Bio
Very informative article.