April 2018 is the beginning of the new financial year (FY 2018-19) in India. We have been conducting several sessions for employees on the tax changes for the new year & one question that we have often been asked is “How do I save tax?”. We shall answer this question in a comprehensive way in a series of articles that will be published on our website. Stay tuned to know more!


In this week’s bulletin, we shall look at one of the more reclusive sections of the Income tax act,  Sec. 80CCD. This section is however gaining popularity with the amendment that was introduced a few years back, allowing investment into – yes, you guessed it right, the National Pension Scheme (NPS).

Here are top 10 things that you need to know about NPS

  • NPS allows you to set aside money for your retirement by creating a corpus during your working life. The corpus is then used to create an ‘annuity’ post retirement. As on December 2017, the total number of NPS subscribers stood at 1.92 crore.
  • Investment into NPS gives you an deduction of Rs. 50,000 per annum u/s 80CCD [1B]. This deduction is in addition to Rs. 150,000 that you can avail under Sec. 80C, 80CCC and 80CCD [1]. This could potentially result in tax savings of Rs. 15,600 per annum if you are in the highest tax slab.
  • You can choose to invest in a particular type of asset base. There are three options (a) Equity, (b) Corporate Bonds and (c) Government Securities. This is unlike the Public Provident Fund scheme where the investments are largely into Government Securities.
  • Subscription to NPS is an easy process as it is all online. On successful registration, a PRAN (Permanent Retirement Account Number) will be allotted to the subscriber. PRAN is generated and the PRAN card is printed and despatched within 20 days from the date of receipt of duly filled registration form
  • The amount invested in NPS cannot be withdrawn entirely.
    • Before the age of 60, up to 20% of the corpus can be withdrawn and the balance needs to be invested in annuity
    • After the age of 60, up to 60% of the corpus can be withdrawn and the balance needs to be invested in annuity
  • Once the subscriber reaches the age retirement (or in case of pre-mature exit), NPS allows the subscriber to exit entirely — by enabling withdrawal of the lump-sum and transferring the balance to the annuity service provider (ASP).
  • These ASPs are appointed by the PFRDA. NPS has no role to play apart from transferring your accumulated corpus to the ASP.
  • Seven life insurance companies (viz. LIC, HDFC Life, Bajaj Allianz Life Insurance etc.) have been appointed to act as ASPs. The subscriber can identify the ASP from which he wants to purchase annuity.
  • The minimum amount of investment is Rs. 1,000 per annum and anybody between the age 18 to 65 can invest in the NPS.
  • The rates provided by the annuities are comparatively low. Currently, the annuity return rates are in the range of 6% to 6.6 %.

NPS is good investment option. However, given the low rate of return and the lock-in (100% withdrawal is not possible at once), you will need to weigh this option with others (e.g. investment into mutual funds or ELSS).

You can read more about NPS on this website – https://enps.nsdl.com/eNPS/NationalPensionSystem.html

If you have any further questions on NPS, please do not hesitate to reach out to us on pavan@bclindia.in. We would be glad to be of your help.


Index of other articles in this series (click on the title to go to the article)

  1. The fine print of 80C
  2. All about NPS!

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