New Pension Scheme (NPS)

Make no mistake – The NPS is an attempt by a lame govt to shirk off its social security responsibility especially towards the taxpayers and salaried class.

The NPS is a paradox. The charges in % age terms are too high if u invest a conservative amt annually. If u invest more the taxes will get the better of u.
Thus though relatively attractive because u are given the flexibility of routing ur investments, it is still a hindrance if one intends to invest a substantial chunk of ones annual savings in it, All in all, PPF still scores over NPF.

That said, lets start with the details.

An account can be opened by all citizens RIs and NRIs minimum 4 transactions a year, minimum yearly contribution Rs 6000.

Charges and Fees

PFRDA CHARGESSad bit is that its usp is its low investment management fees ie 0.0009% per yr, but when one considers the other costs like PTC(Rs80), POP(Rs40) and especially the AMC(Rs 350) the fees that total to Rs 500 per year in transaction charges,  net net the scheme gets expensive considering it to be a long term EET or Taxable at maturity competing with insurance and PPF which are EEE.

Withdrawal procedure

At age 60 (NRA)
– U have to annuatize 40% of ur accumulated wealth

For the remaining sum
– U can withdraw 60% in lumpsome (ouch! that will be taxing)
– U can withdraw 60% in a phased manner ie 10% every yr maximum for 10 yrs (more intelligent) The rulebook states that u have to have a Nil bal at age 70.

Early withdrawal

Before Age 60
U have to annuatize 80% of ur accumulated wealth
U can withdraw 20% in lumpsome.

On death of Account holder

The Nominee can withdraw 100% lumpsome (double ouch)
Nominee can continue but will have to complete KYC.
Here there is ambiguity on the taxability angle…

Investments made in NPS are exempted at two stages,
First under 80CCC with a cap of Rs 1 lakh and then on the interest accrued on this income.
The Budget 09 has made NPS income DDT and STT free so the returns should improve.
However, at the third stage, at the time of withdrawal, the entire amount is taxed, thus nullifying benefits of all previous exemptions.

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3 thoughts on “New Pension Scheme (NPS)

    1. yes ur right,
      without a lowering of charges it is unviable for the small man who saves like a 1000 to 2000 a month , that said
      it is not difficult to make changes and certain stuff like compulsory 4 transactions and separate a/c is ridiculous somehow i think the scope of ones demat account should be increased to accomodate this too.
      It should take some time for the govt to get serious.

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