All you need to know about National Pension Scheme (NPS)

NPS was launched by the Govt. of India in 2004 with the aim of providing retirement income to the citizens and bring more people under the social security cover. Although initially it was restricted to new appointees in the Govt. sector today the scheme is available to any citizen of India. This scheme encourages citizens in the age group between 18 and 60 to save up for retirement.

How does it work?

NPS is regulated by the Pension Fund Regulatory Development Authority (PFRDA). The PFRDA appoints professional fund managers to invest the pooled funds into securities as per the guidelines.

Accounts

Tier I Account: This is the non-withdrawable permanent retirement account into which the accumulations are deposited and invested as per the option of the subscriber. The investor is allowed to withdraw 60% of the amount on attaining 60 years of age and the remaining 40% has to be invested in an Annuity Plan of an approved Life Insurance Provider.

Tier II Account: This is a voluntary withdrawable account which is allowed only when there is an active Tier I account in the name of the subscriber.  The account holder is allowed to withdraw from this account any time.

Structures

Government Sector Model

  • 10%of (basic +dearness allowance) and an equivalent sum from the Govt. is invested in NPS on a monthly basis
  • The contributions are allocated in a predefined proportion to Three Pension Fund Managers (PFMs) viz: – SBI, UTI and LIC Pension Funds.
  • The investment pattern is upto 55% in Govt. Securities, upto 40% in Debt, upto 15% in Equity and upto 5% in Money Market Instruments

Corporate Model

  • Contributions by the employee and employer can be equal, unequal or made by either of the two.
  • Minimum amount per contribution is Rs500 and per year is Rs6000. Minimum no of contributions per year is 1 for Tier I
  • If the contribution is less than Rs6000 for the year the account is frozen and has to be reactivated by paying a penalty of Rs100 per year of default.
  • Minimum amount per contribution is Rs200; Minimum balance at the end of each financial year is Rs2000. Minimum no of contributions per year is 1 for Tier II
  • If the minimum balance is not maintained there is penalty of Rs100 levied on the subscriber.
  • There are two choices for asset allocation
  1. Active Choice: In this option the investor decides the allocation between three asset classes viz: – E (Equity capped at 50%), C- Fixed Income Instruments other than Govt. securities and G-Govt. Securities.
  2. Auto Choice: In this option the allocation to the three asset classes are made according to a pre-defined portfolio based on the age of the subscriber and changes as the age increases.
  • PFMs are LIC, SBI,UTI,ICICI Prudential, Reliance Capital, HDFC, Birla Sunlife and Kotak Mahindra

Swavalamban scheme: This was a co contribution facility extended by the Govt. to people working in the unorganised sector. This has now been replaced by Atal Pension Yojana (APY) in which the Govt. would contribute 50% of a subscriber’s contribution or Rs1000 per year whichever is lower for the next five years till 2019-20. The subscribers have to contribute between Rs1000 and Rs12000 per year to be eligible for this benefit.

Enrolment

The subscriber can register for the scheme by submitting the form and KYC documents at the Point of Presence (POP). The PFRDA has authorized 58 institutions including public sector banks, private banks, private financial institutions and the Department of Posts as Points of Presence (POPs) for opening NPS accounts. The subscriber is allotted a unique Permanent Retirement Account Number (PRAN). This can be used in any location in India.

Tax and Tax Benefits

Currently the NPS is under EET (Exempt,Exempt,Taxed) which means that it is tax free at the contribution and accumulation stages but taxed on Maturity or withdrawal. Tax benefits include a deduction of Rs. 1, 50,000 under section 80CCD. Additional deduction of Rs. 50,000 under section 80CCD (1b) (Effective from 1 Apr 2015)

The NPS has been lauded as the one of the cheapest and best structured Pension Schemes in the world. However it is only now the awareness of the same is growing.

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What are the different types of ITR forms ?

Tax payers in India are required to declare to the Income Tax Department of Govt of India a summary of income and tax paid during the year (April to March of next year). There are several ITR forms such as ITR-1 (Sahaj) ,ITR-2 ,ITR 2A, ITR-3, ITR-4 and ITR-4S( Sugam), ITR-5 and ITR-6. These forms are released every year by Income Tax Department.  To file Income tax returns one needs to fill the appropriate Income Tax return form.

The Finance Ministry recently announced new ITR2 varieties dropping the controversial obligatory disclosure of overseas journeys and dormant financial accounts. The new types of ITR forms – ITR 2 and ITR 2A have three pages and different particulars in schedules. ITR2A has been introduced by the ministry and filled by a person or HUF who doesn’t have capital goods, revenue from enterprise/ career or overseas revenue / asset. At current people/HUFs having revenue from multiple home property and capital positive aspects are required to file Form ITR-2. The final date of submitting returns has now been extended to August 31.

The form to fill income tax returns is based on the types of income earned. Income Tax Department classifies income into different types as given below:

  • Income from Salary: Income is charged under this if there is or was an employer-employee relationship between the payer and payee. Pensions also are included under this head.
  • Income from Profits and Gains of Business or Profession: Income earned through business or profession (ex-professional working as freelancer) is charged under this category. This is taxed taking into account deductions such as depreciation of assets, rent, expenses and travelling.
  • Income from House Property: Any residential or commercial property that you own will be taxed. Rental income is taxed subject to some exemptions for example on Home Loan.
  • Income from Capital Gains: Any profit or gain arising from transfer of capital asset – it could be property or gold, held as investments are chargeable to tax under the head capital gains.
  • Income from other Sources:  Any income that does not fall under any of the four heads of income above is taxed under the head income from other sources. This includes income from fixed deposits, winning a game show etc.

A tabulated representation on what form can one use for ITR filing based on your income sources:

Form

Category

Details

ITR-1 SAHAJ

Individual

1. Income from salary/pension: or
2. Income from one house property
3. Income from other sources( excluding winnings from lottery and income from races horses)

ITR-2

Individual/HUF

1. Income from salary/pension
2. Income from house property
3. Income from other sources (excluding winnings from lottery and income from races horses)
4.Income from Capital Gains.
5. Income from foreign assets.

They should not have Income from Business or Profession.

ITR-3

Individual/HUF

Being partners in firms and not carrying out business or profession under any proprietorship.

ITR-4S SUGAM

Individual/HUF

It is applicable for small businessmen and professionals from business or profession and gross receipts upto Rs. 60 lacs a year

ITR-4

Individual/HUF

Having income from business or profession (such as insurance agent, doctor, CA, lawyer etc.) with gross receipts of more than RS. 60 lacs a year

ITR-Forms                                          Source file  : http://www.bemoneyaware.com/blog/which-itr-form-to-fill/

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