The National Pension System (NPS), which was introduced on January 1, 2004, has revolutionized retirement planning for millions in India. Managed by the government and the Pension Fund Regulatory and Development Authority (PFRDA), it’s designed to help individuals build a financial cushion for life after retirement. Over the years, NPS has gained popularity, especially with its strong investment performance, growing to Rs 2.76 lakh crore in assets, backed by over 58 lakh non-government subscribers.
In 2024, several key changes have been made to the NPS rules, each impacting contributors in different ways. Here’s a breakdown of these changes, simplified for easy understanding.
1. Higher Tax Deduction for Employer Contributions
A significant update announced in the Union Budget 2024 is an increase in the tax deduction limit for employer contributions to NPS. The limit has been raised from 10% to 14% of an employee’s salary.
This means employees will now receive an additional 4% tax deduction on their basic salary, reducing their taxable income. For example, if your basic salary is ₹1 lakh per month, you’ll now get an extra ₹4,000 tax benefit due to this change. It’s a great way for employees to save more on taxes while building their retirement corpus.
2. Changes in NPS Withdrawal Rules
Another important update relates to the withdrawal rules of NPS. As per the new 2024 guidelines, subscribers can now withdraw 60% of their total NPS corpus as a tax-free lump sum.
The remaining 40% must be invested in an annuity plan, which ensures a regular income post-retirement. While the annuity purchase itself is tax-exempt, the payouts from the annuity will be taxed based on the individual’s income tax bracket. If your NPS corpus exceeds Rs 5 lakh at retirement, this rule becomes mandatory.
3. New Investment Allocation Limits
The NPS investment allocation has been revised to allow subscribers to maintain up to 75% exposure in equities until they turn 60. This increase in equity exposure gives individuals more opportunities for higher returns during their working years, as equity investments tend to offer better growth prospects over the long term.
With this change, NPS subscribers can now balance risk and reward more effectively, ensuring a stronger retirement fund.
4. Equity Exposure in Tier-2 NPS Accounts
For those holding Tier-2 NPS accounts, the equity exposure limit has now been raised to 100%. This means that investors can fully allocate their funds to equities in their Tier-2 NPS account, potentially leading to higher gains.
However, it’s important to remember that higher equity exposure also means higher risk. Investors should carefully assess their risk tolerance before opting for 100% equity investments.
5. Introduction of Direct Remittance (De-Remit) Service
The De-Remit facility is a new feature introduced for NPS subscribers in 2024. This service allows individuals to receive the Net Asset Value (NAV) of their investments on the same day they contribute to their NPS account. By linking their bank account to a virtual account number, subscribers can enjoy the benefits of instant remittance through De-Remit.
This improvement is a major convenience for NPS investors, allowing for real-time updates and ensuring that contributions reflect faster in their accounts.
6. Systematic Lump Sum Withdrawal (SLW) Option
From February 2024, NPS subscribers now have the option to make systematic lump sum withdrawals (SLW) from their NPS funds. This allows individuals to withdraw up to 60% of their accumulated corpus periodically between the ages of 60 and 75.
This feature is particularly useful for those who need flexible withdrawals to cover expenses such as children’s education, home purchases, or medical emergencies. The remaining 40% of the NPS fund will still need to be invested in an annuity to secure post-retirement income.
