UPSC IAS Interview 2017-18

What is National Pension System?




What is National Pension System?
The Central Government has introduced the Defined Contribution based Pension System known as the National Pension System (NPS) replacing the existing system of Defined Benefit Pension with effect from January 01, 2004.
NPS is applicable to all new employees of Central Government service, except Armed Forces, who have joined Government service on or after 1st January 2004.The person (employee/citizen) who joins the NPS will be known as ‘Subscriber’ in the NPS. Under the NPS, each Subscriber will open an account with Central Recordkeeping Agency (CRA) which will be identified through unique Permanent Retirement Account Number (PRAN).Under NPS, two types of account would be available to subscribers i.e., Tier I & Tier II; Tier I account - where a subscriber contributes his / her savings for retirement in to a non-withdrawable account, and a Tier II account - a voluntary savings account from which subscribers are free to withdraw his / her savings whenever he/she wishes. The facility of Tier II account was made available from December 1, 2009 to all citizens of India including Govt. employees mandatorily covered under NPS. An active Tier I account will be a pre requisite for opening of a Tier II.

What are the benefits of NPS?
1: It is transparent - NPS is transparent and cost effective system wherein the pension contributions are invested in the pension fund schemes and the employee will be able to know the value of the investment on day to day basis.
2: It is portable - Each employee is identified by a unique number and has a separate Permanent Retirement Account which is portable i.e., will remain same even if an employee gets transferred to any other office.
3: It is simple - All the subscriber has to do, is to open an account with his/her nodal office and get a PRAN.
4. It is regulated - NPS is regulated by PFRDA, with transparent investment norms & regular monitoring and performance review of fund managers by NPS Trust.

What is Swavalamban Yojana?
Swavalamban Yojana is a scheme announced by the Government of India under which for each NPS account opened in the year 2009-10 and 2010-11, Government will contribute Rs. 1000 per year for the next three years, subject to certain conditions such as eligibility criteria etc as laid down by Government of India.

Who are eligible for Swavalamban Yojana?
For the purpose of this scheme, a person will be deemed to belong to the unorganised sector, if that person :
is not in regular employment of the Central or a state government, or an autonomous body/ public sector undertaking of the Central or state government having employer assisted retirement benefit scheme, or
is not covered by a social security scheme under any of the following laws
  • Employees’ Provident Fund and miscellaneous Provisions Act,1952
  • The Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948
  • The Seamen’s Provident Fund Act, 1966
  • The Assam Tea Plantations Provident Fund and Pension Fund Scheme Act, 1955
  • The Jammu and Kashmir Employees’ Provident Fund Act, 1961
The scheme will be applicable to all persons in the unorganised sector subject to the condition that the benefit of Central Government contribution will be available only to those persons whose minimum contribution in Tier I account is Rs.1,000 per annum and maximum of Rs. 12,000 per annum, for both Tier I and II taken together. The central government employee will not be eligible for swavalamban yojana.

What are the tax benefits of NPS?
At present, the tax treatment for contribution made in Tier I account is EET, "Exempted-Exempted-Taxed" i.e., the amount contributed is entitled for deduction from gross total income upto Rs. 1.00 lac (along with other prescribed investments) as per section 80C (as per the provisions of the Income Tax Act, 1961 as amended from time to time). The appreciation accrued on the contribution and the amount used by the subscriber to buy the annuity are not taxable, Only the amount withdrawn by the subscriber after the age of 60 is taxable.
As per the proposed Direct Tax Code, the tax treatment for contribution in Tier I account will be "Exempted-Exempted-Exempted" i.e. in addition to the existing benefit, the amount withdrawn by the subscriber after the age of 60 will be exempted from tax like PPF.

Which document do I use as investment proof in order to avail the tax benefit?
A print out of the Statement of Transaction (SOT) could be used as a document for claiming Tax benefit.

Can a subscriber get loan under NPS ?
No. At present, a subscriber cannot avail a loan against his / her NPS holdings
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