What are the tax benefits in pension account of NPS at SBI?

Largest lender in India, the State Bank of India (SBI) encourages customers to take advantage of tax-saving opportunities by contributing National Pension System (NPS). Founded by the government, NPS is a voluntary retirement savings scheme for investors to help them make a defined contribution towards planned savings thereby securing the future in the form of a pension.

NPS is administered and regulated by PFRDA. NPS is seen as the world’s lowest-cost pension scheme. Subscribers can choose their own investment options and pension fund and see their money grow.

SBI is offering two NPS schemes namely — Tier 1 which is a pension account and mandatory, and Tier 11 which is an investment account and optional. The minimum contribution for the Tier 1 account is 500 and 1,000 for Tier II.

There is a tax benefit available for the Tier I account, however, there is no such benefit in the Tier II account but it has the facility to allow corpus withdrawal anytime.

All citizens of India including RIs and Non-Resident Indians (NRIs) between the age group of 18 to 70 years can open an NPS account.

For Tier I account, in regards to the employee contribution, tax exemption under section 80CCD (1B) of the IT Act is applicable on the contribution up to 50,000. Also, tax deduction under 80CCE for investments (10% of Basic & DA) within an overall limit of Rs. 1.50 lakh is also available, as per SBI’s website.

Further, in the case of employer contribution, tax deduction up to 10% of salary (Basic + DA) u/s 80CCD (2) subject to a monetary ceiling of 7.5 lakh (includes PF, Superannuation, etc.) is applicable.

The exit option under the Tier I scheme on attaining the age of 60 years at SBI are:

— Minimum of 40% of the corpus needs to be invested in Annuity Scheme

— 60% of the corpus can be commuted/withdrawn in lump sum/ staggered anytime up to the age of 75 yrs. The amount is tax-free.

— If the total corpus is equal to or less than 5 lakh, then the entire corpus can be withdrawn

Meanwhile, before the age of 60 years but after completion of 5 years, the exit option in Tier I are:

— 20% of the corpus can be withdrawn in a lump sum

— 80% of the corpus will be invested in an ‘Annuity Scheme’

— If the total corpus is equal to or less than 2.50 lakh, then the entire corpus can be withdrawn

Also, in Tier I, a partial withdrawal of accumulated pension wealth, not exceeding 25% of the employee contributions is allowed after a lock-in period of 3 years.

Additionally, the Tier 1 scheme allows withdrawal only a maximum of three (3) times during the entire tenure subject to conditions prescribed by the Regulator.

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