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About New Pension Scheme: The New Pension System reflects Government’s effort to find sustainable solutions to the problem of providing adequate retirement income. As a first step towards instituting pensionary reforms, Government of India moved from a defined benefit pension to a defined contribution based pension system by making it mandatory for its new recruits (except armed forces) with effect from 1st January, 2004.
Since 1st April, 2008, the pension contributions of Central Government employees covered by the New Pension System (NPS) are being invested by professional Pension Fund Managers in line with investment guidelines of Government applicable to non-Government Provident Funds. It’s now available to every citizen since 1stApril, 2009 on a voluntary basis.
NPS states that an individual in the age group of 18-60 years can contribute to their pension account by investing part of their income during their working tenure. These contributions are channelized by way of banks and post offices (listed under the NPS).
NPS had 2 variants:
Tier I Scheme: Consisting of non-withdraw able pension account.
Tier II Scheme: Consisting of withdraw able pension account.
But yet NPS has not been able to acquire enough investors making it an unpopular choice. Therefore, in order to make it a popular demand, Government has decided to contribute an amount of Rs 1,000 crore in New Pension Scheme for three consecutive years.
Also, the revised proposal in the Direct Taxes Code (DTC) to scrap taxes on withdrawals from the New Pension Scheme (NPS) may boost its popularity. This implies that now it will be an exempt-exempt-exempt (EEE) method of taxation as against the exempt-exempt-tax (EET) system recommended earlier. This means the product will be tax exempt at all the stages of its tenure which are deposit, appreciation and withdrawal. The proposal has made it considerable as compared to other schemes.
Charges paid for starting NPS: New Pension Scheme has been charged 0.0009% fund management and 0.0075-0.05% administrative charge which is the lowest as compared to any other scheme. The Cost of Opening an Account is Rs 50, Annual Maintenance Charge is Rs 350 and Per Transaction Charge is Rs 10. It also includes registration charge of Rs 40 and charge of Rs20 per transaction at points of presence. Though these charges are low, they are still expected to decline with the increase in number of accounts opened.
Comparison of New Pension Scheme with Public Provident Fund: Lock-in period in case of NPS is high to that of PPF. As compared to the average returns of NPS which was 14.8%, it was just 8% for PPF. Also NPS ensures about a regular periodic income by investing a certain amount of money in stocks.
It can be concluded here that it is quite an interesting proposal to lure investors to the New Pension Scheme (NPS). Under Section 80, investment of Rs 1 lakh has been tax Deductible.
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