Pravien Raj
26 December 2023 6,781 6 mins read
Learn about the National Pension System (NPS) and the maximum deposit limit for the financial year. Discover how to invest in NPS effectively and secure your future with a well-diversified portfolio managed by professional fund managers.
One of the key features of NPS is the flexibility it offers in terms of contributions. The subscribers can make contributions to their NPS account as per their convenience and the contributions can be made through various modes such as online, SIP (systematic investment plan), or through offline channels. However, there is a limit on the maximum deposit in NPS and it is important for the subscribers to understand this limit in order to make the best use of NPS.
The National Pension System (NPS) is a government-sponsored pension scheme for citizens of India. It was introduced in January 2004 with an aim to provide a secure financial future to the citizens of India. NPS offers a range of investment options to the subscribers and provides a systematic savings mechanism to accumulate a corpus for retirement.
When we were children, we often preferred pencils that had erasers attached to them, or pens that had refills in various colors. The appeal of a single item that has multiple functions is undeniable. This same concept applies to financial instruments as well. The National Pension System (NPS), which is a highly sought-after pension scheme in India, approved by the central government, is an excellent long-term investment plan for retirement savings. In addition, it also provides tax benefits.
The maximum deposit in NPS is determined by the Pension Fund Regulatory and Development Authority (PFRDA). The maximum deposit limit in NPS is ₹ 1.5 lakh per financial year, inclusive of both the employer’s contribution and the subscriber’s contribution. It is important to note that the maximum deposit limit is inclusive of all contributions made to the NPS account, including contributions made by the employer, the subscriber, and any additional contributions made under the tax-saving section 80CCD (1B) of the Income Tax Act, 1961.
The employer’s contribution towards NPS can be up to 10% of the basic salary and DA, subject to the maximum deposit limit of ₹ 1.5 lakh. On the other hand, the subscriber’s contribution can be any amount up to the maximum deposit limit, subject to the conditions specified by the PFRDA. The additional contribution under the tax-saving section 80CCD (1B) of the Income Tax Act, 1961 can be up to ₹ 50,000. Hence, the total contribution towards NPS, including the employer’s contribution, subscriber’s contribution, and the additional contribution under the tax-saving section 80CCD (1B), can be up to ₹ 2 lakh.
It is important to note that the maximum deposit limit of ₹ 1.5 lakh is applicable to all subscribers of NPS, including government employees, private sector employees, and self-employed individuals. The limit is applicable to all NPS accounts, including Tier-I and Tier-II accounts, and is reviewed by the PFRDA from time to time.
What is National Pension Scheme?
The National Pension Scheme (NPS) is a social security initiative introduced by the Central Government of India. This pension program is inclusive, catering to employees across public, private, and unorganized sectors, excluding those in the armed forces.
The primary objective of the NPS is to encourage individuals to invest in a pension account at regular intervals throughout their employment. Upon retirement, subscribers have the option to withdraw a certain percentage of the accumulated corpus. The remaining amount is then received as a monthly pension, providing financial security post-retirement.
Initially limited to Central Government employees, the NPS became mandatory for those joining the Central Government workforce on or after January 1, 2004. Subsequently, the Pension Fund Regulatory and Development Authority (PFRDA) extended the scheme to all Indian citizens on a voluntary basis.
The NPS offers significant advantages, especially for individuals in the private sector seeking a steady pension income during retirement. Notably, the scheme is portable, allowing individuals to carry their pension benefits across different jobs and locations. Additionally, it comes with tax benefits under Section 80C and Section 80CCD of the Income Tax Act.
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National Pension Scheme Eligibility
To be eligible to join the National Pension Scheme (NPS), individuals must meet the following criteria:
- Citizenship
Should be an Indian citizen, whether residing in India or abroad (resident or non-resident).
Non-Resident Indians (NRIs) are also eligible to join NPS.
- Age
Age should be between 18 to 70 years at the time of NPS account opening.
- KYC Compliance
Must comply with the Know Your Customer (KYC) norms as specified in the application form.
- Legal Competency
Should be legally competent to execute a contract, as per the Indian Contract Act.
- Ineligibility for Certain Categories
Overseas Citizens of India (OCI), Persons of Indian Origin (PIOs), and Hindu Undivided Families (HUFs) are not eligible to subscribe to NPS.
- Individual Account
NPS is an individual pension account, and it cannot be opened on behalf of a third person.
National Pension Scheme Early Withdrawal or Exit Rules
- Upon Superannuation (Age 60)
When a subscriber reaches the age of superannuation or turns 60, they are required to utilize a minimum of 40% of the accumulated pension corpus to purchase an annuity, ensuring a regular monthly pension.
The remaining portion of the corpus can be withdrawn as a lump sum.
- Pre-mature Exit (Before Age 60)
In the case of premature exit before reaching the age of superannuation (before turning 60), at least 80% of the subscriber’s accrued pension corpus must be utilized to purchase an annuity, providing a regular monthly income.
If the total corpus is less than or equal to Rs.2.5 lakh, the subscriber has the option for a 100% lump sum withdrawal.
- Upon the Death of the Subscriber
In the unfortunate event of the subscriber’s demise, the entire accrued pension corpus (100%) will be disbursed to the subscriber’s nominee or legal heir.
How to Plan Your NPS Investments Effectively
Planning your National Pension System (NPS) investments is crucial for ensuring a secure financial future during your retirement years. Here are some steps to help you plan your NPS investments effectively:
- Determine Your Financial Goals: Before making any investments, it is important to determine your financial goals and how much corpus you would need during your retirement. This will help you determine the amount you need to contribute to your NPS account each year to reach your goals.
- Choose the Right Investment Option: NPS offers various investment options, including equity, corporate bonds, government securities, and alternative investment funds. Based on your financial goals, risk tolerance, and investment horizon, you can choose the right investment option that suits your needs.
- Start Early: The power of compounding works in your favour if you start investing early. Hence, it is important to start investing in NPS as early as possible. The longer your investment horizon, the more time your investments have to grow and compound.
- Make Regular Contributions: Regular contributions, even small ones, can make a big difference in the long run. You can opt for the systematic investment plan (SIP) to make regular contributions to your NPS account.
- Review Your Investments Regularly: It is important to regularly review your investments to ensure that they are aligned with your financial goals. You can review your portfolio annually or bi-annually and make necessary changes to ensure that it stays on track.
- Consider Professional Advice: If you are unsure about your investment decisions, consider seeking professional advice from a financial advisor. They can help you make informed investment decisions and guide you in creating a well-diversified portfolio.
- Stay Informed: Stay informed about the changes in the market and the NPS regulations. This will help you make informed investment decisions and adjust your portfolio as needed.
Why Should You Consider NPS Investing?
Investing in the National Pension System (NPS) is a smart financial decision that can help you secure your future. Here are some reasons why you should consider investing in NPS:
- Tax Benefits: NPS offers tax deductions under Section 80C and Section 80CCD (1B) of the Income Tax Act. This means that the amount invested in NPS is exempt from tax up to a certain limit, reducing your taxable income and saving you money.
- Long-term Savings: NPS is designed for long-term savings, making it an ideal option for retirement planning. By investing regularly in NPS, you can build a corpus that can help you live comfortably in your golden years.
- Flexibility: NPS offers flexibility in terms of investment options, contribution amounts and investment tenure. You can choose to invest in equity, corporate bonds or government securities, based on your risk appetite and financial goals.
- Professional Management: NPS is managed by professional fund managers who invest your money in a well-diversified portfolio of assets. This reduces the risk associated with investing in individual stocks and bonds, making it a safer option.
- Affordable: NPS has a low minimum investment requirement, making it accessible to people from all income groups. With a minimum contribution of ₹ 500 per year, anyone can start investing in NPS and enjoy its benefits.
Conclusion
The maximum deposit in NPS is ₹ 1.5 lakh per financial year, inclusive of all contributions made to the NPS account, including the employer’s contribution, subscriber’s contribution, and additional contributions made under the tax-saving section 80CCD (1B) of the Income Tax Act, 1961. The limit is applicable to all subscribers of NPS and is reviewed by the PFRDA from time to time. The subscribers should keep this limit in mind while making contributions to their NPS account and plan their investments accordingly to ensure a secure financial future.
FAQs on Maximum Deposit in NPS
How much money can I deposit in NPS?
The minimum annual contribution to NPS is Rs. 1,000. There is no maximum annual contribution limit.
What is the maximum amount I can put in NPS?
NPS tax benefits extend up to ₹2,00,000 per annum for each individual, any amount invested over and above this limit is not deemed tax-free.
Can I deposit more than 50000 in NPS?
Yes, you can deposit more than Rs. 50,000 in NPS.
What is the maximum return in NPS?
The maximum return in NPS is market-linked and depends on the performance of the assets chosen by the investor.
Can I invest 50000 in NPS at once?
Yes, you can invest Rs. 50,000 in NPS at once.
Can I invest more than 200000 in NPS?
Yes, you can invest more than Rs. 200,000 in NPS. However, the combined annual contribution limit is Rs. 1,500,000 under Section 80 CCD(1) of the Income Tax Act. Any contribution exceeding this limit will not be eligible for tax deduction.
Also, Read:
- New Pension Scheme for Government Employees
- Who is Eligible for New Pension Scheme in India
- Top Performing NPS Schemes
