5 Changes in NPS Rules Every Investor Should Know

Interested in growing your wealth and simultaneously building a substantial retirement corpus? Look no further than the National Pension Scheme (NPS). NPS is a great tax-saving retirement fund and is the perfect long-term investment tool. Here’s everything you need to stay updated on the new National Pension Scheme rules.

How it began

The Government of India launched NPS in January 2004 as a contribution scheme. Initially, it was exclusively meant for government employees. In 2009, NPS was made accessible to all individuals. It is designed to ensure that account holders can earn a stable income even after retirement, along with considerable returns on investment.

New rules to know

Costs: Firstly, charges for NPS account holders have increased marginally after the NPS Trust allowed the recovery of administrative charges/expenses @0.005% of the Asset under Management (AUM) per annum.

Contribution: Secondly, NPS account holders can make regular contributions throughout their employment. A minimum of Rs. 6,000 has to be contributed if you are a Tier I subscriber and if you are a Tier II subscriber, there is no minimum amount. However, if you decide to contribute, you can put in Rs 250. 

Withdrawal: As per NPS Tier I withdrawal rules, about 60% of the maturity amount can be withdrawn after retirement. The remaining 40% must be used to purchase an annuity. For NPS Tier II accounts, which act as voluntary savings funds, investors can withdraw the invested sum as and when they want to. Under the unfortunate circumstances of the death of the account holder before 60 years, the entire amount will be paid to the nominee or the legal heir.

Fees: There has been a nominal increase in NPS fund manager fees, from 0.01 % to 0.09 %. This is a minimal increase to ensure that the pension fund is financially sustainable for management. NPS fund managers may now invest in IPOs and select from over 200 stocks.

Withdrawal and exit rules in detail

Here are the NPS withdrawal rules and NPS exit rules. If the total NPS corpus is less than or equal to Rs 2 lakh, individuals can choose 100% lumpsum withdrawal. In case of pre-mature exit before attaining 60 years of age, a minimum of 80% of the accumulated corpus must be utilised for annuity purchase, and the remaining can be withdrawn. Note that as per NPS rules and regulations, you can exit only after completing ten years.

Tax exemption
Another significant update on the NPS new rules is that the Government increased the Income Tax exemption on withdrawal from NPS to 60%, making NPS a tax-exempt financial product. This means that account holders will enjoy tax exemption on the 60% that an investor can withdraw on maturity. Additionally, exclusively for Central Government employees, Section 80CCD (2) of the Income Tax Act has been revised to provide up to 14% exemption of employer contribution of salary, which means that the Government’s NPS contribution for employees rose from the earlier 10% to 14%.

As per the latest NPS rules, Central Government employees subscribing to NPS will receive greater flexibility in choosing pension fund managers. As opposed to the earlier 15% cap, they can now select a combination of equities and debt funds for asset allocation. As per the new NPS contribution rules, the Government has also allowed voluntary contribution by Central Government to Tier II NPS accounts employees locked in for three years to qualify for tax exemption under Section 80C.

Now that you’re aware of the new NPS rules, are you ready to open an NPS account? Just click the below link!

Click here to open an NPS Account today!

Looking for reasons why to invest in NPS? Click here to know more!

*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your circumstances. You are recommended to obtain specific professional advice before you take any/refrain from any action.