National Pension System (NPS) is a popular retiral scheme in India. It offers upfront tax savings and the product is EEE (exempt-exempt-exempt). That means the investments are exempted, accrual/returns are exempted and withdrawals/maturity are also exempted. NPS also offers a combination of investing into various financial instruments such as Equity (maximum 75%), Bonds and G-Secs. NPS has evolved over time and offers various choices to the investors, while it’s cost of operation still remains the lowest benefiting the subscribers. As it is a retiral product, investor can withdraw 60% of the corpus & invest remaining 40% of the corpus in annuity on attending age of 60 years or above. There are 2 accounts under NPS, Tier-1 & Tier-2. All tax benefits are available on Tier-1 account of NPS.
NPS Tax benefits:
- NPS offers tax benefit on investments up to Rs. 1,50,000/- under section 80 CCD (1).
- Anyone one can invest additional Rs. 50,000/- in NPS and claim tax benefit under section 80 CCD (1B) (this is additional tax benefits over and above 1.5 Lakh 80 CCD (1) limit).
- Salaried employees can opt for NPS contribution via their employer contribution and get additional tax exemption up to 10% of annual basic (without any limit) under section 80 CCD (2) (this is additional tax benefits over and above 1.5 Lakh 80 CCD (1) & 80 CCD (1B) limit).
Many subscribers have opened their NPS account but their account has been frozen/deactivated as they do not carry the minimum investment/transactions prescribed for the year. For opening NPS Account, you have to invest minimum Rs. 500/- in a Tier 1 account and Rs. 1,000/- in Tier 2 account. After opening the NPS accounts, it is necessary to deposit minimum Rs. 1,000/- in Tier 1 and minimum Rs. 250/- in Tier 2 account annually. If you do not deposit the minimum amount your NPS accounts will be frozen.
If your NPS account has been frozen, you can unfreeze/reactivate the same. For reactivation you can approach your NPS service provider (bank, post office or your broker from where you have taken NPS initially). You have to fill UOS-S10A form for reactivation and submit this form along with your PRAN copy. There is a penalty of Rs. 100/- for reactivation and also the subscriber has to deposit the minimum outstanding amount which is due for corresponding missed years.
Please note there is no maximum limit for investment in NPS in either of the accounts. Hence, you can invest as per your requirement.