NEW PENSION SYSTEM (NPS) Here’s a quick guide to the new NPS savings account.
WHAT IS IT? Who can invest?
Only a pension account (Tier I) holder can open a Tier II account
WHAT IS MY COST?
When can you take your money out?
What is the least that I need to invest?
What is the maximum I can invest?
How many times do I need to invest?
Anytime, even a day after you invest
Rs1,000 to open an account and then Rs250 per contribution
No limit
At least four times in a year
What should be the min. account balance?
How much do I lose if I don’t keep min. balance?
Rs2,000 or zero, if you move funds to the Tier I account
Rs 100
Rs20
Rs10
Rs20
0.0075%
0.0009%
to activate the account
to the central record-keeping agency every transaction
to the point of presence as transaction fee
of fund value every year to the custodian
of fund value every year for fund management
THE TAX BITE
NPS Tier II has lower costs, but is tax unfriendly. Here’s a comparison with index funds and fixed deposits, which are similar products
NPS Tier II
Index funds
Fixed deposit
Return
Market-linked
Market-linked
Guaranteed interest
Cost
Very low
Low
No cost
Number of withdrawals
No limits
No limits
No limits
Exit Load
Nil
Varies between nil and 4%
Penalty on withdrawals
Tax treatment
No section 80C and withdrawals are taxable
Section 80C benefit for equity-linked savings scheme. Withdrawals after one year are tax-free
Section 80C benefit for a five-year fixed deposit. Withdrawals are taxable Source: Mint research