NPS Rule Change: These 6 big changes have been made in this scheme; know what the effect will be the

NPS Rule Change: Since its debut on January 1, 2004, the National Pension System (NPS) has proven to be a game-changing initiative for the retirement planning industry in India. Its primary goal is to encourage people to consistently contribute to their pension accounts while they are employed, guaranteeing secure retirement planning.

The program, which is run in tandem by the government and the Pension Fund Regulatory and Development Authority, provides the potential for profitable investment returns but does not guarantee a set pension amount. The rise of NPS assets, which totaled Rs 2.76 lakh crore, was mostly attributed to the 58 lakh non-government users who contributed to the 37% compound annual growth rate. Tell us about any recent changes that have occurred to the NPS.

Tax Deduction Limit

Finance Minister Nirmala Sitharaman made major revisions to the tax deduction limit for employer contributions in the Union Budget 2024. The employer contribution baseline was raised by this modification from 10% to 14% of the employee’s pay. Consequently, in relation to employer payments to NPS, workers will now be eligible for an extra deduction equivalent to 4% of their base pay. For instance, a worker receiving a base income of ₹1 lakh per month is now eligible for an extra ₹4,000 deduction per month.

Withdrawal of NPS

In 2024, the guidelines for ultimate exit from the National Pension System underwent revisions. Members may now take out a lump payment tax-free of 60% of their entire corpus. The remaining 40% must be utilized to buy an annuity plan, which will be taxed throughout the annuity payment phase but will not be taxable upon withdrawal.

40% of the NPS corpus should be utilized to purchase an annuity plan if the total amount to be retired exceeds Rs 5 lakh; this amount will not be subject to taxation. Annuity payments, however, will be taxable according to the taxpayer’s income tax rate.

Allocation of NPS Investments

The NPS has modified its investment allocation policies. Individuals may now only have a maximum of 75% equity exposure until they turn 60, according to the regulation. Customers may benefit from investment development potential throughout their job years thanks to this.

Allocating Equity in a Tier-2 NPS Account

For holders of Tier-2 NPS accounts, the government has raised the maximum allowable equity investment from 75% to 100% tax-free. Through this modification, investors may possibly boost the possibility for gain by increasing their exposure to stocks inside their Tier-2 NPS account.

Direct Remittance (D-Remit) Facility

Now that the Direct Remittance (D-Remit) function has been established, NPS members may get same-day NVA for their investments. Investors may get immediate NVA on their donations made via the D-Remit procedure by creating a Virtual Account Number that is connected to their bank account. NPS investors may profit greatly from this provision.

Systematic Lump Sum Withdrawal

NPS members might choose to take partial withdrawals starting in February 2024 for a variety of uses, including financing their kids’ college education, building or buying a house, or paying for medical bills. Subscribers between the ages of 60 and 75 have the option to regularly withdraw up to 60% of their NPS assets via Systematic Lumsum Withdrawal (SLW). An annuity plan may be created using the leftover funds.