NPS (National Pension System)
Definition
A government retirement savings scheme offering an additional ₹50,000 deduction under Section 80CCD(1B).
Key Takeaways
- NPS is a voluntary retirement pension system regulated by the PFRDA in India.
- Offers an exclusive deduction of up to ₹50,000 under Section 80CCD(1B) in the Old Regime.
- Allows employer contribution deductions under Section 80CCD(2) in both tax regimes.
- At age 60, up to 60% of the corpus is withdrawable tax-free, with 40% allocated to annuity.
Detailed Explanation
The National Pension System (NPS) is a voluntary, long-term retirement savings scheme in India designed to provide systemic retirement income. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). NPS allows contributors to invest in a mix of equity, corporate debt, and government securities based on their risk appetite.
NPS offers unique tax benefits: contributions qualify for deduction under Section 80CCD(1) within the ₹1.5 Lakh 80C limit, and an additional deduction of up to ₹50,000 is allowed under Section 80CCD(1B) under the Old Tax Regime. Furthermore, employer contributions up to 10% of salary are tax-deductible under Section 80CCD(2) under both Old and New Tax Regimes. At age 60, up to 60% of the corpus can be withdrawn tax-free, while the remaining 40% must be used to purchase an annuity.