National Pension System adds 1.03 lac Subscriptions for Q1, FY2020-21 in private sector

National Pension System (NPS), a flagship defined contribution pension scheme of the Government of India, has released its subscription numbers for the first quarter of 2020-21. The scheme’s subscriber base has registered a growth of 30% whereby 1.03 lac individual subscribers from the private sector and 206 corporates were enrolled during the 1^st quarter, resulting in a total of 10.13 lac corporate subscribers in the age group of 18 to 65 years. Among the 1,02,975 subscribers registered, 43,000 have routed their subscription through their employer/ corporate while the rest have voluntarily enrolled in the scheme.

After the onset of COVID-19, employers have adopted or are willing to adopt deeper measures to ensure adequate support to employees in terms of their financial well-being. As per a recent survey of Willis Towers Watson, over 20 percent of employers in the private sector aim to educate employees on retirement adequacy and available savings options, while some companies are focusing on employees approaching retirement by providing independent, unbiased financial advice. Additionally, about 30 percent of employers are looking to address the impact of the pandemic on employees’ financial and emotional wellbeing due to stress and concerns related to economic conditions and job security. As retirement benefits are unlikely to be reduced despite short-term actions by employers, employees may be looking for more flexibility concerning contribution schedules, withdrawals and timing of lump-sum payments, etc.

Shri Supratim Bandyopadhyay, Chairman, Pension Fund Regulatory and Development Authority (PFRDA), which administers National Pension System (NPS), said: “The National Pension Scheme (NPS) has been a success amongst the corporate employees. While financial planning often took a backseat in an individual’s life, this pandemic has brought it to the forefront, creating awareness for financial security at such testing times. During this pandemic, a growing realisation for both corporates and individuals has emerged that retirement planning is not a mere saving or tax benefit choice. The role played by private corporates to take charge of educating the employees about the benefits of NPS is highly appreciable, resulting in an interesting quarter for the pension sector regulator. We have also adopted various proactive measures for ensuring uninterrupted services to the subscribers in this period of unexpected crisis”

In its initiative to educate the citizens and to spread awareness about pensions and National Pension System, PFRDA has been organising webinars in association with industry body Federation of Indian Chambers of Commerce and Industry (FICCI).

About PFRDA

Pension Fund Regulatory and Development Authority (PFRDA) is the statutory Authority established by an enactment of the Parliament, to regulate, promote and ensure orderly growth of the National Pension System (NPS) and pension schemes to which this Act applies. NPS was initially notified for central government employees recruits wef 1st Jan 2004 and subsequently adopted by almost all State Governments for its employees. NPS was extended to all Indian citizens (resident/non-resident/overseas) on a voluntary basis and to corporates for its employees.

As on 30th April 2020, the total number of subscribers under NPS and Atal Pension Yojana has crossed 3.46 crores and the Asset under Management (AUM) has grown to Rs 4,33,555 crores. More than 68 lakhs government employees have been enrolled under NPS and 22.60 lakhs subscribers have subscribed to NPS in the private sector with 7,616 entities registered as corporates.

Benefits to invest in National Pension System

While we all are dealing with the covid-19 pandemic crisis, the topmost priority for all of us is to be safe. In addition to staying safe, we also need to restart and it is important to note that extension granted by the Government to make investments for claiming the tax deductions for FY 2019-20 is due for expiry on 30^th June 2020. Hence, you may need to make quick investments to avail tax deductions for the last financial year.

National Pension System (NPS) was introduced by the Government for its new recruits wef 01.01.2004 and subsequently almost all the State Governments has adopted NPS for their employees. NPS can be voluntary subscribed by any citizens of India (resident/non-resident/overseas) and corporates/employers have adopted NPS as a retirement benefit scheme for its employees.

Subscriber contributing to NPS enjoys the following tax benefits: -

Tax Benefit 1: Deductions on subscriber’s contribution (within 1.5 lac limit)

NPS contributions are eligible for tax deduction u/s 80 CCD(1) of ITax Act (upto 10% of Salary (Basic + DA) or 20% of Gross Income for others) within the overall limit of Rs 1.50 Lacs

Tax Benefit 2: Additional deduction on subscriber’s contribution upto Rs. 50k (above 1.5 lac limit)

Subscriber is allowed an additional tax deduction for contribution made to NPS u/s 80CCD 1(B) of ITax Act subject to a maximum of Rs. 50,000/-.

This deduction is over and above the Rs. 1.5 lac limit prescribed u/s 80CCE of ITax Act and thus, the overall deduction could be Rs. 2 lacs if you contribute in NPS

Tax Benefit 3: Deduction on employer’s contribution (for both employee and employer)

NPS contributions made by employer (upto 10% of the salary) is allowed as a deductible perquisite for employees, subject to a ceiling of Rs. 7.5 lakh (u/s 80CCD(2) read with 17(vii) of ITax Act).

Employer can claim the NPS contributions made to their employees’ NPS accounts (upto 10% of the salary) as an exempted business expense u/s 36(1)(iva) of ITax Act

Tax Benefit 4: NPS is effectively Exempt, Exempt, Exempt product

NPS is an Exempt, Exempt, Exempt (EEE) product, meaning subscriber gets tax exemption at the time of investment, accumulation and withdrawal (maturity).

Tax Benefit 5: No tax on amount received as lumpsum at maturity

At maturity, the lumpsum amount received by subscriber (maximum 60% of corpus) is an exempted income u/s 12A of ITax Act and the balance amount paid for purchasing annuity (minimum 40% of corpus) is also an exempted income u/s 80CCD(5) of ITax Act. These exemptions are irrespective of the amount involved i.e without monitory ceiling.

Tax Benefit 6: No GST for annuity purchase through NPS

Goods and Service Tax (currently 1.8%) otherwise payable while purchasing an annuity product/scheme, is not levied when annuity plan is purchase through NPS.

Tax Benefit 7: No tax on partially withdrawn amount

The amount withdrawn from NPS for emergency purposes (Partial Withdrawals) are tax-exempt u/s 12B of ITax Act.

More to know:

1. NPS also offers an investment option in the form of Tier-II account, wherein investments are withdrawable at any point of time. While you can utilize the services of Pension Funds (fund manager) and have desired asset allocation under this account, there is no separate Annual Maintenance Charge (AMC). You can also switch funds from Tier II to Tier I account online.
2. Dual benefit of Low Cost and Power of compounding: NPS carries the benefit of being one of the lowest cost pension products in the world. The overall costs in NPS are the lowest due to economies of scale in operations of the system architecture. Also, accumulation of the retirement corpus over a period gets accelerated on account of the compounding effect and nominal charges borne by the subscriber.

From - Pension Fund Regulatory and Development Authority (PFRDA)