Considering the
pressing need of people with low income, working in unorganized sector Govt of India
has launched Atal Pension Yojana (APY) in 2015.
National Pension
Scheme is a Defined Contribution Pension scheme in India. Putting simply, the
accumulated amount is invested in an Annuity Plan and the pension is disbursed
by the Annuity Providers from the income of the investment of the Pension Fund
of the subscribers. The amount of pension depends upon the condition of the
capital market. This is a major psychological barrier to attract the
subscribers when joining the NPS is a matter of choice, unlike the employees in
Govt and organized sectors. The Govt of India has guaranteed the amount of
pension which is quite unique in pension fund industry in the world,
particularly when the interest rates are plummeting down.
Important features of
APY:
Comparison between NPS
and APY (that facilitates the understanding of APY):
|
SN
|
Norms
|
APY
|
NPS
|
|
1
|
Age Eligibility
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The age eligibility for individuals to
subscribe for APY scheme is 18 years to 40 Years
|
The age eligibility for individuals to
subscribe for the NPS account is 18 years to 70 years
|
|
2
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Who can Join?
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Only Resident Indians can subscribe
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Open for all citizens of India whether
resident or non-resident
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3
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Need for opening an SB a/c with a bank/
Post Office
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The subscriber has to open an SB a/c with
a bank or a Post Office to join APY. The a/c can also be opened with Business
Correspondent (Bank Mitra)
|
The subscriber has to open an SB a/c with
a bank only if he wants to open Tier II a/c along with Tier I a/c. Tier II
a/c can be opened along with Tier I a/c or later.
|
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3
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Pension Slab
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Subscribers have options to choose a
fixed pension amt of pension (viz. Rs 1000, Rs 2000, Rs 3000, Rs 4000 and Rs
5000) to be received per month for example:
|
No such fixed pension. Pension amt
depends upon the growth in Pension Fund corpus (which depends upon the returns
in capital market) and type of Annuity Plan.
|
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4
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Account Type
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Under the APY, as a single scheme, it
does not offer any differentiation by offering different account types.
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The NPS offers two types of accounts to
its subscribers namely Tier 1 account and Tier 2 account. Tier 2 a/c is an
"Add On" facility helping the subscribers to manage their
liquidity.
|
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5
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Mini and Maxi Contribution
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The minimum contribution under the APY
scheme depends on the age of the subscriber, frequency of contribution and
targeted amt of pension.
|
The subscriber needs to contribute Rs
1000 as initial contribution for opening of NPS account. Thereafter the
minimum contribution is Rs 500 in Tier 1 a/c and Rs 250 in Tier 2 a/c. There
is no limit on the maximum contribution.
|
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6
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Guara- nteed pension amt
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The APY gives guaranteed pension amt post
retirement
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The NPS does not guarantee the amt of
pension as it is linked to the capital markets.
|
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7
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Tax Benefit
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Tax deduction up to Rs. 50,000 under
Section 80CCD (1) over and above the Rs. 1.5 lakh allowed under Section 80C
of the Income Tax Act, 1961 can be claimed.
|
Subscriptions in Tier I a/c is eligible
for tax deduction as following:
[1] Under 80CCD(1), which comes under
Section 80C, self-contribution upto Rs 50000 subject to 10% of salary in case
of salaried employees and 20% of their gross income in case of self- employed
persons.
[2] Further Tax deduction up to Rs.
50,000 under Section 80CCD (1B) which over and above the Rs. 1.5 lakh allowed
under Section 80C.
Thus, NPS subscribers could avail Tax
Deduction benefit through NPS and other eligible investments upto Rs 1.5 lakh
under section 80C.
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8
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Contri. by the employer
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Not applicable
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The employer can also Contribution in
employee’s Tier I a/c.
Employer's contribution towards NPS
Tier-I is eligible for tax deduction under Section 80CCD (2) of the
Income Tax Act (14% of salary for central government employees and
10% for others). This rebate is over and above the limit prescribed under
Section 80C.
80CCD (1), which comes under Section 80C,
covers self-contribution. Salaried employees can claim a maximum deduction of
10% of their salary, while self-employed individuals can claim up to 20% of
their gross income.
- 80CCD (2), which is also a part of Section 80C, covers the
employer’s contribution towards NPS. This benefit cannot be claimed by
self-employed individuals. The maximum amount that an individual is
eligible for deduction is either the employer’s NPS contribution or 10%
of basic salary plus Dearness Allowance.
- Under Section 80CCD (1B), individuals can claim an additional
amount of Rs.50,000 for any other self-contributions as NPS tax benefit.
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9
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Pre-mature withd-rawal
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Pre-mature withdrawal under the scheme is
permitted only under limited circumstances.
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Pre-mature withdrawal is permitted under
the tier 1 account subject to certain conditions. Under Tier 2 a/c,
withdrawal is permitted without any condition.
|
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10
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Return of
Corpus
Amount
to the
Nominee
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On the death of the pensioner, fixed
amount of corpus amount is returned to the nominee depending upon the slab
amount of the pension.
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Amt depends upon the growth of the corpus
depending upon the capital market during the accumulation phase of the
corpus.
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Important Features of APY:
·
Amount t
of Pension and Corpus Amount (at the end of the term period) is guaranteed by
the Central Govt.
·
Subscription
is automatically debited (Auto Debit) by the bank/Post Office (at the opted
periodicity – Monthly, Quarterly, Half-yearly) if the sufficient balance is
maintained by the subscriber at the scheduled time of debiting the
subscription. In case of delayed payment, penalty is charged.
·
APY a/c
can be opened with the Bank Mitra (Business Correspondent) who is easily
accessible as they are: in large numbers, from local community and provide services
at convenient time of the subscribers.
·
The
subscribers receives the PRAN (Permanent Retirement Account Number) Card
·
The subscriber
receives the Statement of Account every year giving the details of the
subscriptions credited in his account.
·
The target
amount of pension can be revised at any time during the year (Effective from
July 2020).
·
In the sad
event of death of the spouse, surviving spouse can opt to continue the
contribution. The corpus will be transferred to the surviving spouse name and a
new PRAN will be issued.
·
Subscriber
can view the PRAN Account online and can also print the PRAN online.
·
Making
Nomination is compulsory while joining the APY.
·
The fees and charges payable to
intermediaries involved in maintaining the APY account are fixed by PFRDA. These
charges are low in comparison with other providers of similar services in
Pension Fund industry. In the case of continuous default of payment of
subscription, the fees and charges will be levied till the corpus fund becomes
zero.
·
The Swavalamban / NPS Lite Subscribers
aged 18 to 40 years are eligible to migrate to APY.
·
The Toll Free Helpline number
for APY Scheme is 1800-110-069.
·
APY is
managed by PFRDA (Pension Fund Regulatory and Development Authority), a
statutory body of the Govt of India.
·
Regarding
stoppage of Auto-debit for APY subscription till 30th June, 2020, PFRDA has
issued guidelines (PFRDA’s circular No: PFRDA/2020/8/P&D-APY/1. dated
11.04.2020).
Indicative table of Entry Age, Targeted Pension
Amount and Monthly Subscription:
As the familial
attachment for looking after the aged people is decreasing day by day, providing
regular income security for them is becoming a matter of prime importance in
the social welfare policy of the Governments in developing countries. However,
providing such support in the form of Aged Pension on required scale and
pattern, as being followed in developed countries, is beyond the financial
resources of developing countries. Considering the ever increasing cost of
pension, the Govt of India has discontinued such liberal earlier pension (generally
known as Defined Benefit Pension) even to its employees since 2004 who are now
covered under National Pension Scheme (a Defined Contributory Pension). Now the
employers are required to contribute in pension fund (earlier this contribution
was being credited in the Provident Fund a/c of the employee). As such, pension
without contribution is not available even to Govt employees (except Armed
Forces) in India. Message is clear: Save and invest for pension for your old
age. The people working in organized sector (which are only 7.5% of the work
force in India) are compulsorily covered under NPS.
Once a person starts earning, he is thinking
about the income security of his family members in the unfortunate event of his
death (and takes life insurance policy as soon as he can afford) but he does
not think his own income security in the event of his inability to earn due to
old age (and as a result neglects to plan for creating a Pension Fund). Among
these two sad events, the probability of occurrence of latter is more and
certain than the former, though nothing could be said certain in one’s life. With
the improvements in health facilities and free medical facilities for the poor
for life threatening diseases, the longevity of life is increasing but in
absence of regular income, old age becomes painful. Self-reliance through
pension brings more self-respect and dignified place in the family as an
elderly person rather than depending upon family member’s income. To a prudent
man, this much must suffice to make him bother about old age pension and get
him into planning for a Pension Fund.
Have you joined APY?
If not, it is time to
think and join if you are eligible. The Govt of India, even though the interest
rates are sliding down day by day and return from capital market is always
uncertain, has guaranteed the pension amount as well as the amount of corpus. How
long will you be sitting on the fence? Join the APY, the sooner, the better.
- G N Patel (The
blogger can be contacted at gnpatel@gujaratinfotech.com)
Disclaimer: “The
information given in the blog is only for general awareness and
must not be construed as a professional advice. Readers are advised to
consult the official documents / resources in any subject matter of
the blog before acting on the information discussed in the blog. The readers
who are acting otherwise are doing so at their own risk."
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