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NPS News | NPS plans delivered double-digit returns last year. Know the returns, the tax rules

NPS plans delivered double-digit returns last year. Know the returns, tax rules | Photo credit: BCCL

New Delhi: The National Pension Scheme (NPS) is a government-backed pension fund regulated by the PFRDA (Pension Fund Regulatory and Development Authority). This plan helps to build up a retirement fund. This program is open to all Indian citizens between the ages of 18 and 65. On the other hand, a mentally retarded person or a current NPS holder is not allowed to open a new account. As a result, an individual can only have one NPS account. Let’s talk about the latest NPS exit and withdrawal guidelines for 2021.

It is a market-linked defined contribution product that requires you to invest regularly in the funds of your choice. The returns are based on the performance of the funds of your choice. There are eight pension fund managers to choose from and one way to do this is to track performance.

NPS returns:

NPS plans have outperformed as the equity and debt plans of all pension fund managers have delivered double-digit returns in the past year. Both Tier-I and Tier-II accounts have shown incredible returns. NPS Scheme E has generated returns of up to 22% over the past year, in line with benchmark returns.

HDFC pension fund returned 21.77% on the Level I account last year, followed by ICICI Prudential pension fund (20.50%), Aditya Birla Sun Life (20.90% ). The LIC pension fund generated the lowest return of 17.96% in Plan G of the NPS Level I account. The borrowing plans under NPS, Plan C and Plan G also generated double-digit returns. Under Plan C, which invests in corporate bonds, the LIC pension fund has achieved the highest returns of 15.19% over the past year.

NPS Scheme G invests in government bonds and related securities. It is a low risk investment option. Double-digit returns over the past year have prompted naive investors to invest in such programs, averaging 13.66% returns.

NPS Yields, Maturity Amount Taxation Rules:

There has been a lot of debate about whether or not the NPS offers an exempt-exempt-exempt tax benefit. For an investment instrument to be Triple E or exempt-exempt-exempt, it must meet the following three conditions:

  • The investment benefits from a tax exemption
  • Income from investment is tax exempt
  • No tax is applicable on the maturity product.

Technically, NPS meets all three criteria, that is, it is sometimes referred to as Triple E or exempt-exempt-exempt. However, there is a catch. The last part concerning the withdrawal of the maturity product is subject to certain conditions. Although the withdrawal of money at retirement is not taxable, there is a condition that some of the money must be allocated to an annuity instrument.

In accordance with applicable tax laws, the money received in the form of an annuity is added to your taxable income. This is where the third condition for an instrument to qualify as exempt-exempt-exempt is a conflict of views. So, although technically the NPS is a Triple E instrument because it meets the three criteria stated previously, there is a catch as there is a mandatory annuity plan involved.

NPS Tax Benefits Under Section 80CCD:

Tax benefit available for individuals: Any natural person subscribed to the NPS can claim a tax benefit under section 80 CCD (1) up to the overall limit of Rs. 1.5 lakh under Sec 80 CCE.

Exclusive tax benefit for all NPS u / s 80CCD (1B) subscribers: additional deduction for investment up to Rs. 50,000 in NPS (level I account) are available exclusively for NPS subscribers under subsection 80CCD (1B). This is beyond the deduction of Rs. 1.5 lakh available under Section 80C of the Income Tax Act. 1961.

Tax benefits in the corporate sector:

Corporate Underwriter: An additional tax benefit is offered to underwriters under the Corporate Sector, u / s 80CCD (2) of the Income Tax Act. The employer’s NPS contribution (for the benefit of the employee) up to 10% of the salary (Basic + DA), is deductible from taxable income, without any monetary limit.
Businesses: Employer contribution to NPS up to 10% of salary (base + DA) can be deducted as “business expenses” from their income statement.
Please note: Tax benefits only apply to investments in a Level I account.

Besides the tax benefits available under 80CCD, there are other tax benefits available under NPS:

Partial Withdrawal Tax Benefits: Subscriber can make a partial withdrawal from the NPS Level I account before age 60 for specified purposes. According to the 2017 budget, the amount withdrawn up to 25 percent of the subscriber’s contribution is exempt from tax.

Tax advantage on the purchase of an annuity: The amount invested in the purchase of an annuity is fully tax exempt. However, the annuity income you receive in subsequent years will be subject to income tax.

Tax benefit on lump sum withdrawal: Once the Subscriber reaches the age of 60, up to 40 percent of the total amount withdrawn as a lump sum is exempt from tax.

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