What are the tax benefits in pension account of NPS at SBI?
2 min read . Updated: 18 Mar 2023, 07:35 PM IST
Premium- 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.
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- 60% of the corpus can be commuted/withdrawn in lump sum/ staggered anytime up to the age of 75 yrs.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- If the total corpus is equal to or less than ₹5 lakh, then the entire corpus can be withdrawn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- 20% of the corpus can be withdrawn in a lump sum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.
