The National Pension Scheme (NPS) is a defined contribution pension system introduced by the central government to provide social security to all Indian citizens. Managed by the Pension Fund Regulatory and Development Authority (PFRDA), the NPS helps its subscribers secure their future through planned savings. The State Bank of India, the country’s biggest lender, offers attractive market-linked returns through the NPS scheme. It also offers tax savings provisions to its subscribers. Here is everything you need to know about the tax benefits of NPS accounts at SBI.
Types of accounts:
There are two types of NPS accounts – Tier I and Tier II. Tier I NPS account, which is mandatory, offers tax benefits. Subscribers need a minimum of Rs 500 for starting the pension account. The minimum total contribution in a year is Rs 1,000.
Tier II NPS accounts do not offer tax benefits. It is an investment account. The optional account requires a minimum contribution of Rs 1,000 opening the account. The corpus can be withdrawn anytime in a Tier II account.
Eligibility criteria for NPS accounts:
The subscriber should be an Indian citizen. Non-resident Indians can also apply.
The account holder must be within the age bracket of 18-70 years.
With regards to employee contribution, NPS Tier I account offers tax deduction u/s 80CCD (1B) on contribution of Rs 50,000. Subscribers can also get tax relief u/s 80CCE for investments (10 percent of Basic & Dearness Allowance) within an overall limit of Rs 1.50 lakh.
If we look at employer contribution, a Tier I account offers tax benefit of up to 10 percent of salary (Basic + DA) u/s 80CCD (2) subject to monetary ceiling of Rs 7.5 lakh (includes Superannuation, Provident Fund etc.)
How to exit NPS Tier I account:
If the subscriber is below 60 years (after completion of five years of account):
Twenty percent of the corpus can be withdrawn in lump sum and the remaining will be invested in an Annuity Scheme. If the total corpus is equal or less than Rs 2.50 lakh, then the complete amount can be withdrawn
If the subscriber has attained the age of 60 years:
At least 40 percent of the corpus must be invested in an Annuity Scheme. The remaining amount can be withdrawn in portions/lump sum any time up to the age of 75 years. The amount is tax-free.
If the total corpus is less than or equal to Rs 5 lakh, then the entire amount can be withdrawn.
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