NPS is India's national pension system that aims to encourage retirement savings. It is regulated by PFRDA and open to all Indian citizens. Contributions can be invested in government bonds, bills and shares. Subscribers receive a PRAN number and can choose from various pension fund managers. Contributions up to Rs. 1.5 lakh are eligible for tax deductions under sections 80CCD(1) and 80CCD(1B). Partial withdrawals are allowed for specific needs but are tax exempt. At retirement, up to 60% of the corpus can be withdrawn tax free with the remaining 40% used to purchase an annuity.

1. Tax benefit under
NPS for 2021
VINOD K AGRAWAL & ASSOCIATES, CA

2. WHAT IS
NPS?
NPS seeks to inculcate the habit of saving for
retirement amongst the citizens. It is an attempt
towards finding a sustainable solution to the problem
of providing adequate retirement income to every
citizen of India.

3. WHO
REGULATES
NPS?
• Pension fund Regulatory and Development Authority.
• Website: https://www.pfrda.org.in/

4. WHO CAN
OPEN NPS?
Any individual citizen of
India
Can be resident or
non resident
NPS account can’t be Joint
account
Multiple account is
not allowed

5. WHERE TO THEY INVEST
MONEY?
Under the NPS, individual savings are pooled in to a pension
fund which are invested by professional fund managers as per
the approved guidelines in to the diversified portfolios
comprising of government bonds, bills, corporate
debentures and shares.

6. WHICH NPS FUND
ARE AVAILABLE?
1. SBI Life Insurance Co. Ltd
2. Life Insurance Corporation of India
3. Star Union Dai-ichi Life Insurance Co. Ltd
4. ICICI Prudential Life Insurance Co. Ltd
5. HDFC Life Insurance Co Ltd.
6. IndiaFirst Life Insurance Co Ltd
7. Edelweiss Tokio Life Insurance Co. Ltd
8. Bajaj Allianz Life Insurance Co Ltd.
9. Canara HSBC Oriental bank of Commerce Life Insurance co Ltd.
10. Kotak Mahindra Life Insurance Co Ltd.
11. Tata AIA Life Insurance Company Limited
12. Max Life Insurance Company Limited
13. PNB Metlife India Insurance Company Limited
14. Aditya Birla SunLife Insurance Company Limited

7. What documents are required?
Proof of Address
Proof of Bank Account Photograph
PAN

8. WHAT IS PRAN?
• Permanent Retirement Account Number
• PRAN is a unique identification number allotted to a
subscriber for his/her Individual Pension Account opened
under NPS. The PRAN remains unchanged even though
the subscriber shifts employment or location.

9. HOW MUCH PENSION WILL
I RECEIVE?
• The amount of pension will depend on the amount of contributions
made, returns on the investments and the portion of corpus utilised
by the subscriber for purchasing annuity plan from any of the
Annuity Service Providers empanelled with PFRDA.
• Under NPS, there is no implicit or explicit assurance of benefit and
the investments are subject to market conditions.
• To get the pension calculator visit:
http://www.npstrust.org.in/content/pension-calculator

10. WHAT HAPPENS IF YOU
DON’T MAKE THE MINIMUM
CONTRIBUTION?
If minimum contribution is not received, the account
is categorized as ‘frozen’ and will get activated upon
making a contribution to the account.

11. TYPES OF NPS
ACCOUNT?
• Tier-I is the Individual Pension Account, which is the
default pension account having all the tax incentives
under Income Tax Act.
• Tier-II is an optional investment account available to a
subscriber having an active Tier-I account. This account
has no withdrawal restrictions and tax benefits.

12. SECTION
80CCD (1)
• First limit for NPS deduction
10% of Basic + DA in case employed
20% of gross income in case self-employed
• Second limit
80C + 80CCD(1) = Maximum Rs 1,50,000

13. SECTION 80CCD
(1B)
•Rs 50,000
•This is additional deduction, over and above
1.50 limit.

14. SECTION
80CCD (2)
• Contribution received from Employer is also
allowed as deduction under this section.
• Employer should directly contribute to NPS for
claiming deduction.
• Maximum 10% of Basic + DA

15. PARTIAL WITHDRAWAL
RULES
• Tier – I after completion of 3 years subscriber can
withdraw 25% of his own contributions for specific reasons
- illness, disability, education or marriage of children,
purchasing property, starting a new venture. Max 3 times
allowed.
• Withdrawal from NPS Tier-II account is permitted at any
point of time, without any restrictions.

16. TAXATION - PARTIAL
WITHDRAWAL
EXEMPT

17. TIER I PREMATURE
WITHDRAWAL
• Allowed after 10 years
• Subscriber can withdraw maximum 20% of the corpus as
lumpsum and minimum 80% of the corpus has to be
utilized for purchasing an annuity plan.
• However, if the accumulated corpus is less than Rs 2.5
lakh, the entire corpus is paid as lumpsum to the
subscriber.

18. TIER I NORMAL
WITHDRAWAL
• on completion of 60 years of age
• subscriber can withdraw maximum 60% of the corpus as lumpsum
• minimum 40% of the corpus has to be utilized for purchasing an
annuity plan for receiving the pension.
• If the accumulated corpus is less than Rs 5 lakhs, the entire
corpus is paid as lumpsum to the subscriber

19. TAXATION -
CLOSURE
Exempt upto 60%
• To save tax on balance 40% invest in annuity
plan.
Pension received under Annuity plan is taxable as per
slab rate.
Amount received by Nominee on closure of NPS due to
death is fully exempt.

20. VINOD K AGRAWAL & ASSOCIATES, CA