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NPS National Pension System Tier-I Account in CPS Subscriptions
What is National Pension System? The Central Government has introduced the Defined Contribution based Pension System known as the National Pension System (NPS) or Contributory Pension System (CPS) (but is popularly known as New Pension System/Scheme) replacing the existing system of Defined Benefit Pension with effect from January 01, 2004. This is the 1st Part of the our upcoming 3 Parts Series on NPS.
NPS is applicable to all new employees of Central Government service, except Armed Forces, who have joined Government service on or after 1st January 2004.The person (employee/citizen) who joins the NPS will be known as ‘Subscriber’ in the NPS. Under the NPS, each Subscriber will open an account with Central Record keeping Agency (CRA) which will be identified through unique Permanent Retirement Account Number (PRAN).Under NPS, two types of account would be available to subscribers i.e., Tier I & Tier II;
Tier I account - where a subscriber contributes his / her savings for retirement in to a non-withdrawable account, and a Tier II account - a voluntary savings account from which subscribers are free to withdraw his / her savings whenever he/she wishes. The facility of Tier II account was made available from December 1, 2009 to all citizens of India including Govt. employees mandatorily covered under NPS. An active Tier I account will be a pre requisite for opening of a Tier II.
At present, the tax treatment for contribution made in Tier I account is EET, "Exempted-Exempted-Taxed" i.e., the amount contributed is entitled for deduction from gross total income upto Rs. 1.00 lac (along with other prescribed investments) as per section 80C (as per the provisions of the Income Tax Act, 1961 as amended from time to time). The appreciation accrued on the contribution and the amount used by the subscriber to buy the annuity are not taxable, Only the amount withdrawn by the subscriber after the age of 60 is taxable.
As per the proposed Direct Tax Code, the tax treatment for contribution in Tier I account will be "Exempted-Exempted-Exempted" i.e. in addition to the existing benefit, the amount withdrawn by the subscriber after the age of 60 will be exempted from tax like PPF.
No. At present, a subscriber cannot avail a loan against his / her NPS holdings.
NPS is applicable to all new employees of Central Government service (except Armed Forces) and Central Autonomous Bodies joining Government service on or after 1st January 2004. For State Governments, State Autonomous Bodies and Corporates, the dates may vary. Any other government employee who is not mandatorily covered under NPS can also subscribe to NPS under "All Citizens of India" through a Point of Presence - Service Provider (POP-SP).
Under Tier I, mandatory contribution will be through a subscriber's nodal office. Every month, 10% of his / her salary (basic + DA) and equivalent government’s contribution will be invested in NPS (Contributory Pension Scheme CPS). For employees under corporate sector, the contribution amount depends on the agreement between the subscriber and the employer. No separate contribution can be made by the subscriber. Hence all the Amount deducted under CPS is nothing but Tier-I for State government Employees of AP.
In case of Tier I account, subscriber's associated nodal office will upload his / her monthly pension contribution details to CRA along with transfer of funds to the Trustee bank appointed for this purpose. CRA will match the contribution details uploaded by the nodal office and the amount confirmed to be received by Trustee Bank and instruct the Pension Fund Managers to invest the contribution as per your scheme setup preference. The units created will be credited by CRA to your Permanent Retirement account.
Withdrawal of Tier I account: As per the guidelines for withdrawal stipulated by Pension Fund Regulatory & Development Authority (PFRDA)/Ministry of Finance(MOF), the subscribers can exit form National Pension System (NPS) on his / her retirement, resignation or death.