NPS Rule Change: The National Pension System (NPS), which was implemented on January 1, 2004, has emerged as a game changer in India’s retirement planning sector. Its main goal is to encourage people to make regular payments to their pension accounts during their working years, assuring a secure financial future after retirement.
The system, which is jointly run by the government and the Pension Fund Regulatory and Development Authority (PFRDA), does not guarantee a predetermined pension amount but does offer the chance of positive investment returns. NPS assets have grown at a compound annual growth rate (CAGR) of 37%, totaling Rs 2.76 lakh crore, owing primarily to the contributions of 58 lakh non-government consumers.
Here 6 major regulations relating to the NPS Rule Change
- Limit on tax deductions
Finance Minister Nirmala Sitharaman proposed significant revisions to the employer contribution tax deduction limit in her Union Budget 2024. This revision raised the employer contribution baseline from 10% to 14% of the employee’s wage. As a result, employees will be entitled to deduct an additional 4% of their base income for employer contributions to NPS. Employees receiving a basic monthly pay of ₹1 lakh can now receive an additional ₹4,000 deduction every month.
- NPS Withdrawal
The rules for eventual withdrawal from the National Pension System (NPS) were changed in 2024. Members can now withdraw up to 60% of their total balance as a tax-free lump sum.The remaining 40% should be utilized to purchase an annuity plan, which is tax-free upon withdrawal but is taxed during the annuity payment period.
If the entire amount at retirement exceeds Rs 5 lakh, 40% of the NPS corpus should be used to purchase annuity contracts; this share is tax-free. However, the annuity payout will be taxed based on the individual’s income tax bracket.
- Investment Allocation for NPS
The investment allocation rules inside the NPS have been updated. Individuals can now retain a maximum equity exposure of 75% until they reach the age of 60. Customers can take advantage of investment development prospects while still employed.
Table of Contents
- Equity allotment for Tier 2 NPS accounts
The government has raised the equity allocation ceiling for Tier 2 NPS account holders from 75% to 100% tax-free. This change allows investors to expand their investments in shares within their Tier-2 NPS account, thereby improving growth potential.
- Directly Remittance Service (D-Remit)
With the introduction of the Direct Remittance (D-Remit) feature, NPS customers can now get same-day NVA for their deposits. Investors who register for a Virtual Account Number connected to their bank account can receive quick NVA on their donations via the D-Remit process. This facility provides substantial advantages for NPS investors.
- Regular Lumpsum Withdrawal
Beginning in February 2024, NPS subscribers might make partial withdrawals for a variety of objectives, including paying their children’s higher education, purchasing or developing residential property, and covering medical bills. Systematic Lumpsum Withdrawal (SLW) allows subscribers to withdraw up to 60% of their NPS money at regular intervals between the ages of 60 and 75.The remainder can be utilized to fund an annuity plan.
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