New set of rules came into effect regarding the NPS system, The new rules are quite helpful in withdrawing the amount as early as opposed to the regulations in place earlier. Let us look into the details about this scheme and what changes the recent budget revealed!
What is NPS?
The New Pensions Scheme (NPS) is a product implemented by the Government of India and managed by Pension Fund Regulatory and Development Authority (PFRDA). It aims at creating a retirement corpus for the beneficiary by investing sums in the scheme during the pre-retirement years.
The number of accounts, any individual (NRI included) can open,is restricted to one,and the subscriber’s age must fall in between 18 and 60 years. The scheme has two Tiers for the investors namely, Tier 1 and Tier 2.Tier 1 is main Account after which tier 2 can be opened.Tier 2 is fully withdrawable account.
Where to invest?
There are three sets of area or classes in which the subscriber can choose to allocate his funds. After selecting a type, the subscriber has the freedom to change it one last time, and that too, at any point in time. The available asset classes for investing are:
Asset Class E
Place of Investment: In the Equity Market
Risks Factor: High
Asset Class C
Place of Investment: In Corporate Bonds and other fixed-income instruments (Gov. excluded)
Risks Factor: Medium
Asset Class G
Place of Investment: In Government Securities
Risks Factor: Low
NB: If you have chosen the Asset Class E, the maximum equity exposure is limited to 75% Which also changes as age increases under aggressive option.
There are no assured returns from NPS.
Apart from this, you could also choose your fund managers from the available six options.
How to attain one?
You can open an account by submitting necessary KYC documents along with the filled-out form at your nearest Points of Presence Service Providers (POP-PS) with the minimum contribution.
How to exit from one?
There are three ways.
Subscriber age: 60 years and above
Withdraw amount: 60% of the accumulated sum ( 40% Taxfree and remaining 20% taxable )
(The rest 40% is converted into one of the pension schemes)
Subscriber age: Below 60 years
Withdraw amount: 20% of the accumulated sum
(The rest 80% is used to buy a pension product)
However, at the time ofthe demise of a subscriber, 100% withdrawal of NPS by a nominee is possible.
The new set of rules regarding the NPS withdrawal was brought forward in the 2018 Annual budget,and it has mainly three changes.
- Increase in the withdrawal amount
The investors of Tier 1 are now allowed to withdraw as much as 25% of the accumulated corpus as opposed to the previous 20%. Tier 2 investors can withdraw their amount partially or entirely at any point in time.
- The subscriber must belong to NPS scheme for at least three years
- The amount that can be withdrawn includes the contribution and credit in his account on the date of withdrawal
- Maximum of three withdrawals are allowed in lifetime
- Necessary documents regarding the purpose of retreat must be submitted to the National Pension System Trust by the subscriber or a family member if the subscriber is ill
The early withdrawal from the NPS scheme is carried out for any of the below-mentioned purposes.
- Higher education of the subscriber’s children (including legally adopted)
- For setting up new businesses or acquiring one
- The marriage of your children (including legally adopted)
- For the construction of residential houses or purchase of a flat, if only there are no residential houses or flat in the subscriber’s name
- Subscriber, spouse, their children or dependent parents suffer from any sort of specified illness like cancer, kidney failure, primary pulmonary arterial hypertension, stroke, coma, total blindness, paralysis, Heart valve surgery, major organ transplant, serious accidents, etc. (Refer the guidelines for the complete list)
- Contribute to NPS corpus beyond 60 Years
The new rule also allows subscribers to extend their pension scheme beyond the age of 60 up to 70 years of age. This extension has to be done at least 15 days before the age of 60 and must be applied in writing or by filling a form to the National Pension System Trust or any other Authorized authority.
If the subscriber misses the opportunity to extend the scheme and has reached the age of 60 years, they still can extend the date by giving suitable reasons for the delay. This procedure is to be carried out within 185 days of reaching the age of 60 years.
- Withhold the NPS withdrawal to recover any dues from an employee
For State and Central Government employees, if there are any payable dues left by the employee to their employers under any obligation, then the employer has the authority to withhold the NPS withdrawal to recover the payable dues.
The employer will only be able to recover these after the departmental and judicial proceedings regarding this matter reach its conclusion. However, this rule is applicable only to Tier 1 accumulated corpus.
These are the new rules added and amended to the NPS withdrawal during the Annual Budget of 2018.