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Abbreviation | NPS |
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Predecessor | Old Pension Scheme |
Formation | January 1, 2004 |
Type | Pension cum investment scheme launched by Government of India |
Legal status | Regulated by Pension Fund Regulatory and Development Authority |
Purpose | Provide defined-contribution based pension for retirees and extend old age security coverage to all citizens |
Headquarters | New Delhi |
Location |
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Products |
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Membership (30 April 2023) | 6,35,43,628 Subscribers |
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Government Sector Subscribers (April 2023) |
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Private Sector Subscribers (April 2023) |
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Other Subscribers (April 2023) |
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Parent organization | NPS Trust |
Affiliations |
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Website | https://npstrust.org.in/ |
Department of Financial Services, Ministry of Finance - Government of India |
The National Pension System (NPS) is a defined-contribution pension system in India regulated by the Pension Fund Regulatory and Development Authority (PFRDA) which is under the jurisdiction of the Ministry of Finance of the Government of India.[1] National Pension System Trust (NPS Trust) was established by PFRDA as per the provisions of the Indian Trusts Act of 1882 to take care of the assets and funds under this scheme for the best interest of the subscriber.[2]
NPS Trust is the registered owner of all assets under the NPS architecture which is held for the benefit of the subscribers under NPS. The securities are purchased by Pension Funds on behalf of, and in the name of the Trustees, however individual NPS subscribers remain the beneficial owner of the securities, assets, and funds. NPS Trust, under the NPS Trust regulations, is responsible for monitoring the operational and functional activities of NPS intermediaries’ viz. custodian, Pension Funds, Trustee Bank, Central Recordkeeping Agency, Point of Presence, Aggregators, and of IRDAI registered Annuity Service Providers (empanelled with PFRDA) and also for providing directions/advisory to PF(s) for protecting the interest of subscribers, ensuring compliance through an audit by Independent Auditors, and Performance review of Pension Funds etc.
National Pension System, like PPF and EPF, is an EEE (Exempt-Exempt-Exempt) instrument in India where the entire corpus escapes tax at maturity and the entire pension withdrawal amount is tax-free.[3]
The New Pension Scheme was implemented with the decision of the Union Government to replace the Old Pension Scheme which had defined-benefit pensions for all its employees. Notification No. 5/7/2003-ECB issued by the Ministry of Finance (Department of Economic Affairs) in a Press Release dated 22 December 2003 mandated NPS for all new recruits (except armed forces) joining government services from 1 January 2004[4] While the scheme was initially designed for government employees only, it was opened up for all citizens of India between the age of 18 and 65 in 2009, for OCI card holders and PIO's in October 2019.[5] On 26 August 2021, PFRDA increased the entry age for the National Pension System (NPS) from 65 years to 70 years. As per the revised norms, any Indian Citizen, resident or non-resident, and Overseas Citizen of India (OCI) between the age of 18–70 years can join NPS and continue or defer their NPS Account up to the age of 75 years.[6] It is administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA).[7][8][9][10]
On 10 December 2018, the Government of India made NPS an entirely tax-free instrument in India where the entire corpus escapes tax at maturity; the 40% annuity also became tax-free.[11] Any individual who is a subscriber of NPS can claim tax benefit for Tier-I account under Sec 80 CCD (1) within the overall ceiling of ₹1.5 lakhs under Sec 80 C of Income Tax Act. 1961.[12] An additional deduction for investment up to ₹50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B).[13][7][8][9] The changes in NPS was notified through changes in The Income-tax Act, 1961, during the 2019 Union budget of India.[14] There is no tax benefit on investment towards Tier II NPS Account. NPS is limited EEE, to the extent of 60%.[15] 40% has to be compulsorily used to purchase an annuity, which is taxable at the applicable tax slab.[10] In 2021, withdrawal rules at the time of maturity was changed, and a person can withdraw entire NPS corpus lump sum if it is Rs 5 lakh or less, but 40% will be taxable.[16][17]
Contributions to NPS receive tax exemptions under Section 80C, Section 80CCC, and Section 80CCD(1) of the Income Tax Act. Starting from 2016, an additional tax benefit of Rs 50,000 under Section 80CCD(1b) is provided under NPS, which is over the ₹1.5 lakh exemption of Section 80C.[18][19][20] Private fund managers are important parts of NPS.[21][22][23] NPS is considered one of the best tax saving instruments after 40% of the corpus was made tax-free at the time of maturity and it is ranked just below equity-linked savings scheme (ELSS).[24]