With the launch of Central Government’s New Pension Scheme (NPS), lot of questions has stemmed the minds of people. Is the New Pension an extension of Atal Pension Yojana (APY)? Are these two schemes different? What we will get in NPS? Is it better than APY? Whal all tax benefits we will get if we invest in NPS? Can anybody become a part of the new scheme? Is there any cap on the level of investment under the new scheme? Can the invested funds be withdrawn in between? You try to dig out one question and a layman will have hundreds of them. Let us discuss points of difference between the two schemes so as to get clarity on the above mentioned questions:
Who can join?
Any Indian citizen, who may be a resident or non-resident in the age group of 18-60 years can join NPS. Whereas, APY is meant only for Resident Indians who are in the age group of 18-40 years.
Is there any slab of pension?
There is a fixed pension slab in APY and the amounts in the slabs are Rs. 1,000, Rs. 2,000, Rs. 3,000, Rs. 4,000 and Rs. 5,000 per month. Whereas, in case of NPS, there is no such slab.
How much contribution is allowed?
In case of APY, the minimum contribution and frequency of contribution is dependent on the age of participant. For example, for a person who is of 18 years of age, minimum contribution on monthly basis is Rs. 42 that can fetch him a monthly pension of Rs. 1,000. Similarly, for a person who is 40 years of age, minimum monthly contribution stands at Rs. 291. In case of NPS, there are two tiers – tier I and tier II. In tier I, an individual is required to make a minimum contribution of Rs. 6,000 on annual basis with a minimum of Rs. 500 per contribution and every year, there has to be at least 4 contributions. In tier I, there is no restriction on the maximum level of contribution. In case of tier II, there has to be a minimum contribution of Rs. 250 per contribution and at end of the financial year, participant is required to have a minimum balance of Rs. 2,000. In this case as well, there is no cap on the maximum limit of contribution. However, the restriction on maximum limit is applicable in case of APY. For 18 years old, maximum limit is Rs. 210 to fetch a monthly pension of Rs. 5,000 and for the same amount, 40 years old can contribute maximum of Rs. 1,454.
Is there any provision of premature withdrawal?
In case of APY, withdrawal facility is not available, i.e. the amount can be available for withdrawal in case of death or terminal diseases. However, on attaining the age of 60, one can utilize the entire accumulated amount for pension but partial withdrawal is not allowed.
In tier II of NPS, there is no restriction and the amount can be withdrawn any time. In tier I, there are different provisions. At the age of 60 years, one can use 40% of the accumulated amount fir buying annuities from insurance companies approved by IRDA. This can be done with partial amounts. However, the lump sum balance is required to be withdrawn before the participant reaches the age of 70. In case the participant is interested in withdrawing before the age of 60 years, then 20% of the lump sum amount can be withdrawn in cash and balance 80% will have to be used in buying annuities from insurance companies approved by IRDA. If the participant expires before the age of 60, then his/ her nominee will receive the lump sum.
What are the associated tax benefits?
In case of NPS, tax benefit is available only in Tier I and not in Tier II account. Employers gets a deduction from his income they contribute on behalf of their employees and it can be claimed by employee u/s 80CCD (2). If an employee individually makes this contribution then he can claim deduction u/s 80 CCD (1). With APY, there are no such income tax benefits. However, pension from both APY and NPS will be taxable as salary.
What are the returns?
Returns under APY are not disclosed but one can get a fixed monthly pension. Whereas, in the case of NPS, there is no guarantee of returns.
Is nomination possible under both the schemes?
Nomination is mandatory only in APY. However, in NPS, you can appoint maximum three nominees. Though it is not compulsory to make a nominee but still it is advisable.
Can an individual open more than one account?
In both the cases, maximum limit is one account for an individual.