National Pension Scheme – A Discussion


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The National Pension Scheme is an employee-funded retirement plan of Unionized Public Employees of all countries. The basic idea behind this scheme is that the member should be able to purchase an annuity of his choice keeping in mind his future income and future needs also. A member should decide about what kind of investment he would like to make in order to have a secure future, and thus purchasing an annuity of his own choice becomes all the more important. So as to be a member of this scheme, an applicant should furnish the necessary details such as the present age, annual earnings, total assets and the corpus of the pension plan.

National Pension Scheme India

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Another important thing that should be considered while applying for the National Pension Scheme of India is the eligibility criteria. Basically, it consists of four levels, namely the nominated employee, the self-regarded employee and the other category is the other eligible class. When you reach the fourth level of eligibility, you will be given a notice accordingly, which you have to follow. After that, you will get the choice of two options, either to go for immediate or delayed receipt of the annuities. Delayed receipt of the annuity means that you are not eligible to receive the tax benefits on the same period of time but on a later date, as per the notified rules.

On the other hand, immediate receipt of the pension means that your money gets deposited in your account within a short period of time. In case of any delay in getting the pension, the concerned authority can claw out your money by claiming back the contribution that you made under the open account rules. In case you are a retired employee, then there is no such restriction. In the case of both cases, it is better that you go for an open account instead of an IRA or some other similar option because the contributions are not taxed in the hands. This is one of the biggest reasons why the government of India has allowed people to make IRA contributions and still retain their contributions under the national pension scheme.

Benefits

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The next step in order to reap the maximum tax benefits from the plan is by choosing the right retirement option. There are two retirement plans under the scheme of the National Pension Plan of India. One is the Old-age pension scheme where the incomes are taxed only half while the other pays full taxes. You could opt for either of them if you are of the age criteria fixed by the government of India. Another important point is that the contributions that you make should come from the asset classes that are defined by the government of India.

If you have a share account and a fixed income, then you are not eligible to choose the deferred deposit option under the national pension scheme of India. Instead, you can choose the direct deposit option, as it allows you to withdraw the money without tax benefits at any point in time. The other important point is that you should not make contributions from any source which is not listed as a qualified source. Under the deferred deposit option, you are allowed to make contributions in small monthly amounts after attaining the age of sixty-five years. You can also take advantage of the premium holiday schemes under the national pension scheme of India.

One of the main plans of Indian companies is the Contingency fund. This plan includes a benefit called the war widow benefit and the military base allowance plans. The former provides a lump sum payment to the widow of the decedent or a member of the family who is a widow, and the latter pays a fixed amount to the military unit on the death of the beneficiary. There are some companies in India that offer lifetime pensions, and this refers to a person who has retired from the service after reaching the age of sixty-five years. The definition of retired is the completion of five to ten years of service with an organization or an institution. Once you reach this age, the corpus or the asset class is non-existent.

The other important benefit plan is the Open Account contribution. This is another asset class, and the term is open account means that the person is allowed to contribute in small monthly amounts without restriction. It is very similar to the contribution made in the national pension scheme but with a few important differences. In case of any voluntary withdrawal, it is not possible for the employee to make a withdrawal for his entire asset classes. Age is a factor in this case.

Bottom Line

Another type of benefit plan is the Minimum contribution option, wherein the employees have to make a single contribution after attaining the age of twenty-one years. There is a limit of twenty-five percent in the total contribution, but the withdrawal is not possible during the lifetime. The withdrawal during the lifetime is only possible if the person begins to make contributions before attaining the age of twenty-one. This is considered to be the most simple yet convenient option available to the employees of the National Pension Scheme of India.

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