See Full Document Text
eConference
Creation of pensioned society in India
– Importance and Challenges
28th January 2022 4:00PM
Jointly organized to conclude
Pension Month - January 2022 observed by ICMAIKeeping the mandate to promote old age income security of Indian Citizens in focus, PFRDA
collaborated with The Institute of Cost Accountants of India (erstwhile ICWAI), a statutory
professional body for the regulation of the profession of Cost and Management accountancy
in India, to create awareness about pension and retirement planning.
The Institute observed January 2022 as the Pension month. As a concluding event of the
campaign, a webinar was organized on 28th January, 2022 at 4:00 PM with theme Creating
Pensioned Society in India – Importance and Challenges.
The session was attended by more than a thousand participants and ICMAI members.
4:00 - 4:05 PM Welcome Address by CMA P. Raju Iyer, President, ICMAI
4:05 - 4:10 PM Address by Mr. Supratim Bandyopadhyay, Chairperson, PFRDA
4:10 - 4:20 PM Special Address by Mr. Sudhir Shyam, Economic Advisor, DFS, Ministry of Finance.
Address by Chief Guest - Dr. Bhagwat Kishanrao Karad,
4:20 - 4:35 PM
Hon’ble Minister of State, Ministry of Finance, Government of India
4:35 - 4:37 PM Vote of thanks by CMA Vijender Sharma, Vice President, ICMAI
Members of the Panel Discussions
1. Mr. William Price, Global pension expert – Ex. Official of World Bank, UK Treasury
& UK Pension Regulator
2. Dr. Deepak Mohanty, Whole-Time Member (Economics) PFRDA, Former
4:37 - 5:27 PM
Executive Director Reserve Bank of India
3. Ms. Bahroze Kamdin. Partner Deloitte Haskins & Sells LLP
Interactive session with the participants (Q&A)
5:27 - 5:30 PM Vote of thanks by CMA Chittaranjan Chattopadhyay, Chairman BFSI, ICMAIPFRDA Chairman Sh. Supratim Bandyopadhyay in his
address stressed upon the importance of pensions
and the need for prioritizing retirement planning
among younger generation.
W atch the address by Chairman
Hon. Minister of State (Finance), Dr. Bhagwat Kishanrao
Karad pointed out that we as country need to ensure
adequate and affordable pension for our citizens
and the Government is committed towards
creating a pensioned society in India.
W atch the Minister’s address
Panel of experts, Dr. Deepak Mohanty, Mr. Will Price and
Ms. Bahroze Kamdin provided insights on the role of
financial literacy in expanding pension coverage,
importance of simplicity and automation for a
successful pension system and tax incentives for
efficient retirement planning.
Watch the panel discussionMonograph
on
NATIONAL PENSION
SYSTEM
Banking, Financial Services &
Insurance Board
THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
Statutory Body under an Act of Parliament
www.icmai.in
Headquarters: CMA Bhawan, 12 Sudder Street, Kolkata - 700016
Delhi Office: CMA Bhawan, 3 Institutional Area, Lodhi Road, New Delhi - 110003
Behind every successful business decision, there is always a CMAwww.icmai.in BFSIB - Monograph - January 2022 1
THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
(Statutory Body under an Act of Parliament)
CMA P. Raju Iyer President
CMA Vijender Sharma Vice-President
BANKING, FINANCIAL SERVICES & INSURANCE BOARD 2020-2021
Chairman
CMA Chittaranjan Chattopadhyay
Members
CMA (Dr.) Balwinder Singh
CMA Biswarup Basu
CMA Ashwin G. Dalwadi
CMA Debasish Mitra
CMA (Dr.) Ashish P. Thatte
CMA H. Padmanabhan
CMA Papa Rao Sunkara
CMA (Dr.) K Ch A V S N Murthy
Shri Sushil Behl, Government Nominee
CMA Murali Ramaswami
CMA Diwan Chand Arya
CMA Sreekant Kandikonda
CMA Tanmaya Pradhan
CMA Sunder Ram Korivi
CMA P N Murthy
Nominee of IRDAI
Nominee of RBI
Nominee of SEBI
Nominee of DFS, Ministry of Finance
Secretary Deputy Secretary
CMA Arup S Bagchi, Sr. Director CMA Dibbendu Roy, Additional Director2 BFSIB - Monograph - January 2022 www.icmai.in
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TABLE OF CONTENTS
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1. President’s Message 3
2. Vice President’s Message 4
3. Message from Hon’ble Union Minister of State for Finance, 5
Government of India, New Delhi
4. Message from Chairman of PFRDA 6
5. Message by CMA Chittaranjan Chattopadhyay, Chairman of Banking, 7
Financial Services and Insurance Board
6. Brief summary on National Pension System (NPS) 9
7. Circle of Life Cashflow Planning 11
8. National Pension System (NPS) 17
9. Income Tax Deductions and Exemptions – National Pension 22
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CMA P. Raju Iyer
President
The Institute of Cost
Accountants of India
It gives me immense pleasure to the social security for old age by an
announce that the Banking, Financial assured income flow through their
Services Insurance Board of the various schemes like National Pension
Institute in association with Pension System (NPS) and Atal Pension Yojana
Fund Regulatory and Development (APY). Both the schemes cater not only
Authority (PFRDA) is observing January, to the Government Employees but the
2022 as the Pension Month. benefits of scheme can be taken any
individual who are working and need
I am indeed happy to state that the
a flow of income at their silver age.
online conference on the topic of
The benefits of the schemes apart
‘Creating Pensioned Society in India-
from safety and security are very low
Importance and Challenges’ is being
cost and tax benefits which no other
hosted on a virtual forum on 28th
scheme presently can cater. We believe
January, 2022. We are also honoured
that retirement planning is very much
to have the kind presence of Shri
necessary with advancement of life
Supratim Bandyopadhyay, Chairperson,
expectancy which was 40 in 1960 and
PFRDA would be gracing the occasion.
rose to 70 in 2022.
We are very much honoured to have
the gracious presence of Dr. Bhagwat I express my gratitude to our resource
Kishanrao Karad, Hon’ble Minister of persons for their valuable inputs
State, Ministry of Finance, Government and contribution in the Monograph
of India. We are indeed happy to published in the NPS month. I also
state that representatives of PFRDA, acknowledge the dedicated efforts of
International Tax Expert, Whole time the BFSI teamfor their support to the
Member, PFRDA and Tax Expert would excellent initiative of launching the
be the speakers for the occasion. Monograph.
I congratulate CMA Chittaranjan My best wishes to Banking, Financial
Chattopadhyay, Chairman of Banking, Services and Insurance Board for their
Financial Services and Insurance future endeavours
Boardand other members of the Board
Warm regards,
for an excellent initiative for the benefit
of stakeholders at large. CMA P. Raju Iyer
We know that PFRDA is trying to create PresidentCMA Vijender Sharma
Vice President
The Institute of Cost
Accountants of India
Creating Pensioned Society in India -
Importance and Challenges
It is indeed a proud feeling to state that that their expenses at their old age. The PFRDA,
the Banking, Financial Services Insurance in order to augment the Government’s
Board of the Institute in association with objective of social security, has launched
Pension Fund Regulatory and Development National Pension System and Atal Pension
Authority (PFRDA) is observing the Pension Yojana. Both the schemes objectives are
Month of January, 2022. different and have various benefits and
caters to both organized and unorganized
In order to celebrate the Pension Month an
work force of the country. The NPS is market
online conference on the topic of ‘Creating
linked with exposure to equity based on
Pensioned Society in India-Importance and
the risk appetite and age of the individual.
Challenges’ is being organized by BFSI Board
We also have seen that NPS is governed by
on 28th January,2022 from 4-6 pm. We are
indeed proud to have the gracious presence PFRDA with proper transparency and it is
of Dr. Bhagwat Kishanrao Karad, Hon’ble technology driven. The subscribers get tax
Minister of State, Ministry of Finance, benefits apart from capital appreciation.
Government of India and Shri Supratim It invests not only in equities but also in
Bandyopadhyay, Chairperson, PFRDA. The corporate bonds, treasury and also in
webinar would have the gracious presence Alternative Investment Trusts.
of senior officials of PFRDA, International
I express my heartfelt gratitude to the
Tax Expert and eminent consultants.
contributors for the Monograph published
I congratulate CMA Chittaranjan in the NPS month. I also acknowledge
Chattopadhyay, Chairman of Banking, the dedicated efforts of team BFSI for
Financial Services and Insurance Board and their support to the excellent initiative of
other members of the Board for such an launching the Monograph.
effort which encompasses the objectives of
My best wishes to Banking, Financial
the Institute for initiating such an excellent
Services and Insurance Board for their
activity.
future endeavors.
We know that old age is a reality and all
CMA Vijender Sharma
citizens should plan their finances in such
a way so that they can sufficiently cover Vice-President
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Hon’ble Union Minister of
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Government of India
New Delhi6 BFSIB - Monograph - January 2022 www.icmai.in
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Message
It gives me immense pleasure to convey that the collaborative
events undertaken with The Institute of Cost Accountants of
Indiawas rewarding for disseminating awareness about pension
and retirement planning. The observance of January 2022 as the
Pension Month by the Institute and the support extended
toPension Fund Regulatory and Development Authority is
commendable.
The culmination of Pension Month with an online webinar on Creating Pensioned
Society in India – Importance and Challengesand publishing of this Souvenir, will
enhance the understading of the participants, members and students of ICMAI on
issues related to ageing population, retirement planning during working life, pensions
and old age income security.
National Pension System (NPS) and Atal Pension Yojana (APY) which are regulated
by PFRDAhas over Rs 7 lakh crore of pension assets contributed by 4.90 crore
subscribers. ABrief Summaryon NPS is included in this souvenir which will facilitate as
a ready reckoner for the participants.
I take this opportunity to thank ICMAI for their laudable support and hope that ICAI
and its members as ambassadors of NPS/APY will surely bring in profound impact
towards creation of a pensioned society.
Supratim Bandyopadhyay
New Delhi
28th January 2022CMA Chittaranjan Chattopadhyay
Chairman
Banking, Financial Services and
Insurance Board
The Institute of Cost
Accountants of India
It is a proud moment for the Institute was formed in the year 2003 for the
and being given the responsibility of Government sector. Initially, it covered
the Chairman of Banking, Financial the employees of both central and the
Services and Insurance Board it is indeed state government who were migrated to
a great pleasure to state that the new the contributory pension system from the
year’s first month i.e. January, 2022 is old regime of assured pension scheme
being observed as the ’Pension Month ‘. prevalent prior to the year of 2004. The
New Pension Scheme was created in which
We are organizing an online webinar to
both the employee and the employer
observe the Pension Month in association
contributed for the retirement corpus
with Pension Fund Regulatory and
of the employee. Thereafter, we saw an Development Authority (PFRDA) on the
exodus of all state governments to join the
topic ‘Creating Pensioned Society in
new system and with the opening up for
India-Importance and Challenges’. We are
the corporate sector the scheme changed
overwhelmed to state that Dr. Bhagwat
it’s name to National Pension Scheme.
Kishanrao Karad, Hon’ble Union Minister
It is now expected the corpus of NPS
of State for Finance would grace the
would reach to Rs.7.5 lakh crore by the
event as the Chief Guest and address the
end of 2022. We also have seen that Atal
participants. We would also have the kind
presence of Shri Supratim Bandyopadhyay, Pension Yojana (APY) which is a pension
Chairperson, PFRDA as the Guest of product primarily for the unorganized
Honour along with our President, CMA P. sector which would provide a guaranteed
Raju Iyer and Vice President, CMA Vijendra pension and it has now crossed 3.3 crore
Sharma. The speakers for the event would subscribers for the year 2021-22. The
be experts in the relevant field. NPS presently provides tax relief u/s 80C
and 80 CCD (1b) and gives choice to the
We all know that pension is a social security
investor to pick up their Fund Manager,
mechanism in which the employee gets
Debt-Equity Mix, Alternative Investment
an amount which he accumulates through
based on their individual risk appetite.
his/her contribution in their service life
and which would cover their expenses We know that a majority of India’s labor
at the old age. The PFRDA with the force is in the un-organized sector without
objective of creating such social security having any formal pension arrangements.
www.icmai.in BFSIB - Monograph - January 2022 7
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EPresently, the labor force participation help all members, students and others
rate (LFPR) is 40.1% and worker population to understand the mechanism of NPS
ratio (WPR) is now 38.2% and NPS/APY is and it’s various features. We also hope
the panacea for catering to the need of the that the Regional Councils, Chapters will
population. participate in our objective of financial
literacy and organize online programmes
The objective of the Government is to
to observe the Pension Month and make it
provide requisite funds for old age to both
a grand success.
the organized and the unorganized sector
and as we know that life expectancy of
Indians has reached to 70 years in 2022. CMA Chittaranjan Chattopadhyay
We hope that this Monograph would Chairman, BFSIB
8 BFSIB - Monograph - January 2022 www.icmai.inBrief Summary on National
Pension System (NPS)
National Pension System (NPS) is a defined contribution pension system introduced by
the Central Government for its new recruits w.e.f. 1stJanuary 2004 and replaced the
erstwhile defined benefit pension. Following the Central Government’s decision, most
of the State Governments have adopted NPS for its employees. NPS is available for enrollment
by any citizens of India w.e.f. 1st May 2009 and institutions/employers/corporates can also
adopt NPS for its employees as a retirement benefit scheme w.e.f. 5th December 2011.
Basic features
Eligibility :
Indian Citizen (resident or non-resident) or an Overseas Citizen of India (OCI) aged between
18 - 70 years
Enrollment:
An NPS account can be opened through
Points of Presence (PoP) (i.e. All major Banks, NBFCs and Fintech companies) - Online or
Physical mode
Online platform (eNPS) of NPS Trust – Using Aadhaar or PAN & Bank authentication.
Types of Accounts:
Tier I - The Individual Pension Account, is the default pension account with all the tax incentives.
Tier-II - An optional investment account available to a subscriber having an active Tier-I account
Investment Choices:
(A) Selection of Pension Funds (can change once in a FY):
Subscriber can choose the Pension Funds registered with PFRDA to manage the NPS
contributions/investments.
(B) Investment Choice for Asset Allocation (can change 4 times in a FY):
Active Choice: Subscriber actively decides allocation of funds across Equity (upto 75%),
Corporate Bonds (upto 100%) and Government Securities (upto 100%)
Auto Choice: The contributions get invested across three asset classes in pre-determined
proportion as per the age of subscriber. There are three options under Auto choice
i.e. Aggressive / Moderate / Conservative Life cycle funds, which can be chosen by the
subscriber based on his/her risk appetite.
www.icmai.in BFSIB - Monograph - January 2022 9NPS Tier-I account – Tax benefits & implications
Sl Deduction on Contributions Exemption at exit/ withdrawal
1 Deduction upto 1.5 lakh u/s 80CCD(1) Lumpsum payments upto 60 %
Employee contribution–10% of salary of total corpus is exempt u/s
Self-employed/professionals–20% gross income 10(12A)
2 Additional deduction of Rs.50,000 u/s 80CCD(1B) Amount utilised for annuity
purchase is exempt u/s
80CCD(5)
3 Employer contribution – Deduction for employee Up Partial withdrawal is exempt u/s
to 10% salary u/s 80CCD(2) subject to Rs. 7.5 lakh 10(12B)
4 Employer contribution – Deduction for employer Up GST not applicable onannuity
to 10% salary u/s 36(1)(iva) purchases through NPS
5 Transfers to NPS from Approved Superannuation Funds and Recognized Provident
Funds are tax exempt.
Withdrawal / Exit
Condition Premature Exit Normal exit
When After 5 years of joining NPS After attaining superannuation
ageor 60 years
Lumpsum Withdrawal Maximum 20% of the corpus Maximum 60% of the corpus
Annuity Purchase Minimum 80% of the corpus Minimum 40% of the corpus
Complete Withdrawal Only if total corpus is less than Only if total corpus is less than Rs
Rs 2.5 lakh 5 lakh
Death of Subscriber Nominee/legal heir can withdraw the entire corpus or purchase
annuity.
Partial Withdrawal After 3 years, maximum 25% of own contributions can be
withdrawn for specific reasons viz critical illness, disability,
children’seducation/marriage, purchasing house, starting a venture.
Defer / Continuation After attaining superannuation age or 60 years, subscriber can opt
to
(i) continue NPS account with contributionsor
(ii) defer exit without contributions upto 75 years of age
(iii) take lumpsum in installments and defer annuity till 75 years of
age.
10 BFSIB - Monograph - January 2022 www.icmai.inFCMA Soumit Das
Chief Mentor - Financial Goal Achievers
Circle of Life Cashflow Planning
Let’s start with the most important So we started with 28000 days, if we subtract
number in the World, which is 28,000. half of it which is 14,000 days, we all have
28,000 is the average number of days a 14,000 days to achieve all our dreams.
person lives. Which is equal to76.71 years.
As we approach 40, we are gripped by 4
Let’s round it off 80 years. I would like to
universal fears.
break this 80 in 4 parts.
0 to 20 , 20 to 40 , 40 to 60 and 60 to 80 The first fear being, “what if I cannot work to
60?” What if my career gets derailed by either
0 to 20 - We study and we play around.
disability or a bad illness?
20 to 40 – We get our first job, we buy our
The second fear is, “what if I do not reach 60?”
first car our first house, we get married, we
have kids. If I do not reach 60, I may have a problem.
One can handle it through Life Insurance,
40 to 60 – We might change our job or start
which is an income protection for family in
a business. So we might take on a second
the event of death.
job. We definitely will buy a second car. We
might buy a second house as an investment. The third fear is, how much is needed to
However, more importantly by now our kids
retire? Is it 5 crore rupees, 10 crore rupees,
are getting ready to finish their first part of
20 crore rupees? How much is enough to
life.
retire? We may all have different answers to
60 to 80 – We hope to retire. Now this part of this question.
life is most important as there is no income.
The fourth fear is, “can I ensure that my
children start life with the right foundation ?
and the best foundation is to have the right
education.
All the above four questions can be answered
with guaranteed payouts. So people need to
plan for it and build a diversified investment
portfolio for better risk adjusted returns.
Hence, the importance of Financial Planning
and Cashflow Planning in Life. Cashflow
www.icmai.in BFSIB - Monograph - January 2022 11Planning is actually Life Flow Planning, as one
needs Cashflow in every Stage of Life , right
from Cradle to the Grave. Financial Planning
requires a good understanding of the various
Asset Classes and Investment Products.
One shouldInvest in a Diversified Portfolio
of Growth and Income Generating Assets
according to their Investment Objective, Risk
Appetite and Investment Horizon. Investors
need to understand the correlation between
Risk vs Return. Higher the Risk, Higher is the
probability of Return. Risk is also associated
with Uncertainty. However, Risks can be
Measured and Managed to a certain extent.
Risks associated Life Uncertainties viz. Death,
Disease and Disability can be mitigated with
Insurance Products, while Risks associated
Provision for Emergency Funds
with Market Volatilities can be mitigated with
Asset Allocation. Provision for Life Long Earning
The Covid – 19 Pandemic has taught us Provision to Beat Inflation
the following Financial Lessons :
Emergency Fund – Need for Emergency Funds
Need for Emergency Funds arises due to unforeseen contingencies,
whose occurrence is not certain and whose
Importance of Health Insurance and Life
time is not known. Events like Death, Disease,
Insurance Disability, Job Loss require Emergency
Funds to deal with them. Free Cashflows
Critical to Diversify Investment Portfolio
are required to face Emergency Events as
Necessity of Will and completion of
mentioned above, which can be generated
Nominations with the help of the following Financial
Products :
Not to take any Loan that we cannot
afford Health Insurance – Medical Emergency
can occur anytime in the Family and may
Benjamin Franklin, the Founding Father of
require Hospitalization for Treatment.
the United States of America said, “If You Fail
A Health Insurance Policy for the entire
to Plan, You are Planning to Fail”.
Family, with adequate coverage and relevant
Absence of Financial Planning can lead to benefits, is a smart way of making provisions
for Emergency Funds, to pay the increasing
Financial Mistakes, can be seen in the picture
costs of Advanced Medical Care.
below :
Life Insurance – Our Financial Goals
The 3 Pillars of Financial Planning are as
like Child’s Education, Child’s Marriage
under :
and our Retirement are sure events of Life.
12 BFSIB - Monograph - January 2022 www.icmai.inWe know their time of occurrence and the Bank Deposit– Bank Deposit is still
estimated amount of money required to the most popular Savings and Investment
achieve these Life Goals. However, these Life Option. Money in Savings Bank Account earns
Goals may be challenged by Market Volatility average interest rate of 3.00% per annum and
and Life Uncertainty like Death, Disease or those in Term / Fixed Deposit Account earns
Disability for which the Time is not known. average interest rate of 5.00% per annum.
One can secure their Financial Goals with Bank Deposits give stable Returns and easy
Life Insurance Plans that offer Financial Liquidity to the Investor, hence popular.
Protection to their Family and also provide However, investors need to understand that
Guaranteed and Tax-Free Returns to Enjoy the Bank Interest Rates are dependent on
Life. the prevailing Repo Rate, which is gradually
decreasing in India. Further, Money kept
Personal Accident Insurance –
in a Bank Account is protected by Deposit
Personal Accidents in India is amongst the
Insurance and Credit Guarantee Corporation
highest in the World. Accident may lead to
(DICGC) upto Rs.5 lakhs only, in case a Bank
hospitalization of the victim , loss of income
fails to pay it’s depositors.
due to prolonged treatment , disability etc.A
Personal Accident Policy, with adequate Liquid or Low Duration Mutual Fund–
coverage and relevant benefits, is a smart Liquid Mutual Funds invest in a portfolio
way of making provisions for Emergency of Money Market and high quality Debt
Funds to deal with such situations. securities. They are ideal for investment
horizon of 90 days and is giving an average
Critical Illness Insurance – Human Life
return of 3.33% per annum in the current
Span has increased with advancement in
market scenario. Low Duration Mutual Funds
Medical Sciences, but so has the Morbidity
also invest in a portfolio of Money Market
Risks of Disease. Critical Illness like Cancer,
and high quality Debt securities. They are
Heart Attack, Multiple Sclerosis, Stroke,
ideal for investment horizon of up to 1 year
Kidney Failure, Paralysis etc. are growing
and is giving an average return of 4.3% per
Worldwide and can occur anytime in the
annum in the current market scenario. Risk
Family, leading to expensive Medical
and Reward of Mutual Fund Investment is
Treatment and Loss of Income. A Critical
related to the market.
Illness Insurance comes as a savior in such
situations. Apart from buying a Critical Life Long Earnings - In order to meet the
Illness Insurance, one can also choose to Basic Living and Lifestyle Expenses in every
add a Critical Illness Rider while buying a Life Stage of Life , one needs to make provisions
Insurance Policy or a Health Insurance Policy. for Life Long Earnings. That is why Investing
– the Science of Money making Money, is
Property Insurance – Investment
important in Life. One can enjoy Life Long
Portfolios are often over weight on Real Estate
earning by Investing in a Diversified Portfolio
Assets, be it self-occupied House Property or
of Income Generating Assets. Free Cashflows
Properties on Rent or for Investment. Most
are required in every stage of Life, more so
people love to invest in Property, but only the
post Retirement, which can be generated
smart ones choose to Protect their precious
with the help of the following Financial
Property from Fire, Earthquake, Storm, Flood
Products :
and other Perils. One should cover the most
expensive part of their Investment Portfolio Pension Scheme - A Pension is a type
with Property Insurance, that has adequate of Retirement Plan that provides monthly
coverage and relevant benefits. income for whole life, after one retires from
www.icmai.in BFSIB - Monograph - January 2022 13their position. The employer is required to Deferred Annuity: These are the pension
contribute to a pool of funds invested on plans in which the annuity starts after a
the employee's benefit. As an employee, certain date. It can be further divided into
one may contribute part of their wages the following:
to the plan, too. Not all businesses offer
Accumulation phase - It is the phase
these plans. National Pension System (NPS)
when one start investing and accumulating
introduced by the Government of India to
cash and commences from the date when
facilitate a regular income post retirement
one first time pay premium.
and governed by PFRDA (Pension Fund
Regulatory and Development Authority), is Vesting phase - It is the date from which
the most popular Pension Scheme in India. one will start getting the policy benefits in
It is available to all Indian citizens 18 to 60 the form of pension.
years of age. This well regulated Investment
Annuity helps to secure Fixed Income for
product is one of the lowest in cost investment
whole life at the prevailing Interest Rates.
product in India. It is a voluntary scheme
This is of special significance, especially in
where in the subscriber can contribute any
economies like India , where the Interest
amount at any time. Subscribers have the
Rates are gradually decreasing.
flexibility to select or change the POP (Point
Life Insurance Plan – Life Insurance
of Presence), Investment Pattern and Fund
companies in India offer Endowment
Manager. This ensures that investors can
Plans that offer Guaranteed and Tax Free
optimize returns as per their comfort with
Earnings for whole life. These are non-
various Asset Class (Equity, CorporateBonds,
linked, participating, individual, whole life
Government Securities and Alternate Assets)
assurance plans which offer a combination of
and Fund Managers. This Scheme comes
Income and Protection toone’s family. These
with easy Portability, as NPS subscribers
plans providefor annual survival benefits
are allotted unique Permanent Retirement
fromthe end of the premium paying term
Account Number (PRAN) which remain same
till maturity and a lump sum payment at the
irrespective of change in employment, city or
time of maturity or on death of the policy
state. Investment in NPS qualify for Income
holder during the policy term. Investment
Tax deduction under Sec 80CCE , 80CCD (1)
in these Life Insurance Plans helps to save
and 80CCD (2).
Income Tax under Sec 80C and all Income
Annuity Scheme - An Annuity is a
and Maturity under such plans are Tax Free
long-term investment agreement between
under Sec 10(10D) of the Income Tax Act.
an Insurance Company and an individual,
Investment in Bond - Bonds are fixed
in which the individual makes payments in
income instruments that are issued by
series or in a lump sum, in exchange for
Governments or Companies to raise money
which he gets periodic disbursements or
by borrowing from investors. Bonds are
income for whole life, either immediately or
typically issued to raise funds for specific
in the future. Annuity Plans are generally of
projects. In return, the bond issuer promises
two types as under :
to pay back the investment, with interest,
Immediate Annuity plans: There is no
over a certain period of time. One advantage
accumulation phase and the plan starts
of investing in Bonds is that they are a
working right from the vesting phase. It is
relatively Safe Investment. Bond values do
purchased with a lump sum and the annuity
not tend to fluctuate as much as stock prices.
payment starts immediately.
Another benefit of Bonds is that they offer a
14 BFSIB - Monograph - January 2022 www.icmai.inpredictable income stream, paying investors constitutes a major part of an Investor’s
a fixed amount of interest periodically. portfolio. Rental Income from Real Estate can
generate Free Cashflow, provided they are
Sovereign Bonds - In June 2020, Government
not acquired through Mortgage. Rental Yields
of India launched "Floating Rate Savings
in India are still lower than the prevailing
Bond ( Taxable) bond for an initial coupon
Mortgage Rates. Rental Yields in India are
of 7.15%, to be reset half yearly. The coupon
in the range of 1.5% to 2% per annum for
rate was pegged with the prevailing National
Residential Properties and in the range
savings certificate (NSC) rate with a spread of
of 4% to 4.5% per annum for Commercial
35 basis points over the respective NSC rate.
Properties. Whereas Mortgage Rates in India
The interest rate still remains at 7.15%. These
are presently at 6.5% to 7% per annum,
are the Safest Bonds and Issued by Reserve
which is much higher than the Rental Yields.
Bank India on behalf of the Government of
Besides Real Estate investments are subject
India.The Bonds shall be repayable on the
to MaintenanceCosts, Property Tax, TDS on
expiration of 7 (Seven) years from the date
Rent etc. Though Land appreciates in value
of issue. Premature redemption shall be
over a period of time, Building experience
allowed for specified categories of senior
depreciation due to wear and tear. Investors
citizens.
Planning Life Long Rental Income from Real
Corporate Bonds – There are several options Estate, should execute Will for seamless
of Corporate Bonds available in India, that Transfer of Property in their absence / death.
are issued by Companies in Government,
Beat Inflation - Inflation is the rate of
Public Sector and Private Sector. While
increase in prices of goods and services in
investing in Corporate Bonds one needs to
an economy over a given period of time.
be mindful of the Quality / Safety, Tenure,
Inflation is typically a broad measure, such
Coupon Rate and Yield of the specific Bond.
as the overall increase in prices or the
This will ensure Safety of the Capital and
increase in the cost of living in a country.
Regular Income.
India's retail price inflation rose to 5.59
Systematic Withdrawal Plan - percent in December 2021 from 4.91
Systematic Withdrawal Plan (SWP) allows percent in the previous month of November
Investors to withdraw a fixed amount 2021. As Indian Economy is developing,
regularly from their investments in a Mutual the Inflation is also gradually decreasing.
Fund scheme. When investors opt for a SWP, However, Earnings of Investors should be
they systematically receive their own money growing in order to beat Inflation. This can
from the ongoing investment by redeeming be effectively done by investing in Growth
some mutual fund units. Investors get a Assets like Equity / Stocks. It is interesting
regular Income and Earn better tax efficiency. to note that the Sensex has multiplied 560
SWPs attract Income Tax at the rate of 15% times since its inception with 1979 as the
for Short Term Capital Gains and 10% for base year (Base Year:1978-79 =100). By
Long Term Capital Gains. Whereas, Dividend averaging around 15% CAGR during the last
42 years. Sensex has rewarded long-term
Withdrawals from Mutual Fund Schemes are
investors handsomely. Equity Investment
Taxed at 30% + Surcharge + Cess. Further,
can be done through direct Stock picking
Dividend more than Rs.5000 per annum also
or through Equity Mutual Funds. Investors
attract TDS at the rate of 10%.
can invest in Stocks of Companies in Good
Rent from Real Estate – Real Estate
Business, run by Efficient Management, with
whether Residential or Commercial
consistent Growth in Earnings , Visibility
www.icmai.in BFSIB - Monograph - January 2022 15on Longivity of Earnings and available a period of Time is capable of Income
at attractive Prices. Investors can invest Replacement. Power of Compounding is
in Stocks of good Companies in Banking the Eighth Wonder of the World. Investors
Financial Services & Insurance (BFSI) Sector, who start their Savings and Investment
Information Technology (IT) Sector, Fast journey from early years of Earnings, can
Moving Consumer Goods (FMCG) Sector, benefit from the Power of Compounding and
Automobile Sector etc. with consistent track achieve Financial Freedom early. Dream Big.
record of Dividend Payout, Bonus Issue,
Set Goals. Take Action.
Rights Issue, Share Buy Back etc. thereby
Source and Reference: Dr. Sanjay Tolani,
increasing the Shareholders value.
NSDL, IRDAI, AMFI, BSE, NSE.
Conclusion: In order to achieve Financial
Disclaimer : Financial Investments are
Freedom and Live Life at one’s own terms,
one needs to Invest in a Diversified Portfolio subject to Market Risks. Please consult your
of Income Generating Assets, that over Financial Advisor before Investing.
16 BFSIB - Monograph - January 2022 www.icmai.inShri Sudhakar Kulkarni
Certified Financial Planner
National Pension System (NPS)
NPS (National Pension System) is one citizens to continue their account with as
of the best options for Retirement low investment as Rs. 500/- at one time
Planning launched by Government of and Rs. 1,000/- per annum.
India, which is regulated by Pension Fund
The scheme gives flexibility to select
Regulatory and Development Authority
the fund manager and monitor the
(PFRDA), it is defined contribution-based
performance
Pension Scheme having following objectives,
Provides option to park short term
To create retirement corpus and provide
surpluses in Tier-II account which can be
regular income after retirement from
withdrawn as and when required
service/business
Pan India operations in this account are
Market based returns over long period of
possible through vast network of POPs
time
(Point of Presence)
The NPS was initially launched only for the
Provides investment options suitable
Central Government Employees joined after
to individual’s risk appetite however
1st January 2004, except armed forces.
gradually shifting to fixed income
Later on, it was followed by all most all
securities with growing age.
State Governments for their newly joined
employees. With effect from 1st May 2009, Structure of NPS:
PFRDA made option available to all citizens
National Pension System (NPS) is regulated by
of India to join National Pension System
Pension Fund Regulatory and Development
voluntarily. PFRDA has also launched the
Authority (PFRDA). PFRDA is a statutory body
NPS-Corporate Sector Model, to enable the
constituted as per Pension Fund Regulatory
employees working in the private entities to
and Development Authority Act passed on
join the scheme and avail similar benefits as
19th Sept 2013 and notified on 1st Feb
the Government Employees.
2014. PFRDA has segregated different duties
Salient Features of NPS: to separate entities, and has accordingly laid
down the rules and regulations for all the
It is a voluntary scheme open to every
entities.
citizen of India between the age group
of 18-70 year working in the private / Points of Presence (POPs) are appointed
unorganized sector as the first point of contact for all the NPS
subscribers. Where NPS services are provided
The scheme gives flexibility to the
to organised as well as unorganised sector.
www.icmai.in BFSIB - Monograph - January 2022 17Two CRA (Central Record keeping Agency) viz. or any other period or at any point of time as
NSDL e-Governance Infrastructure Limited may be notified by the authority.
and Karvy Computer share Private Limited
Last but not the least a separate trust named
are appointed as the central record keeping
NPS Trust is constituted for taking care of the
agency who are entrusted with Record
assets and funds under the National Pension
keeping, Administration and Customer
Scheme in the interest of the subscribers.
service functions for all subscribers of the
NPS. How to open & operate NPS account:
Following fund managers have been 1. NPS account can be opened both off line
appointed by PFRDA and online. Any individual both resident
and non-resident Indian can open NPS
LIC Pension Fund Limited
account who is between the age of 18to
SBI Pension Funds Private Limited 70 and has complied KYC norms. Off line
account can be opened with any POP or
HDFC Pension Management Company
authorised bank branch. Online e-NPS can
Limited
be opened with NSDL or Karvy. However,
ICICI Pension Fund Management persons with unsound mind can’t open
Company Limited NPS account. One cannot open two NPS
accounts with different bank or POP or
UTI Retirement Solutions Limited
e-NPS.
Kotak Mahindra Pension Fund Limited
2. Upon opening the NPS account unique
Reliance Capital Pension Fund Limited
12-digit account number viz. PRAN
Birla Sunlife Pension Management Limited (Permanent Retirement Account Number)
is given to the respective account
Fund collected from NPS subscribers are
holder and card having this number
managed by these fund managers. NPS
with name and photo and date of birth
account holder has choice to select /change
of the account holder is given along with
the fund manager.
account opening kit.
PFRDA has also appointed Annuity
There are two types of NPS account a) Tier-I
Service Providers (ASP) to take care of
& Tier-II of which Tier-I is mandatory while
monthly disbursement of the Pension to
Tier-II is optional. Tier- I account is made
the subscribers at the time of opting for
specifically for retirement purpose. However,
retirement option. Subscriber has choice to
it does allow partial withdrawals for special
select one of the approved Annuity Service
occasions in life. More than that, the account
Provider.
offers the best tax-savings for investors.
Trustee Bank as an intermediary is responsible
There is no upper limit for investment,
for the day-to-day flow of funds and banking
although tax benefits will only apply to
facilities in accordance with the guidelines/
a limited amount based on your income.
directions issued by the Authority under
Also, contribution to NPS is compulsory for
NPS. Currently Axis Bank is acting as trustee
government employees, while private-sector
bank as it has been re-appointed as Trustee
employees have a choice.
Bank under NPS by PFRDA w.e.f. 8th January,
2021. The appointment of Trustee Bank is However, as a self-employed person you
valid for a period of five (5) years from the can invest as much as you like out of your
date of appointment subject to annual review income.
18 BFSIB - Monograph - January 2022 www.icmai.inThe minimum contribution to Tier-I account Higher education and marriage of your
has to be at least Rs. 500 per transaction and child, including the one, legally adopted
at least Rs. 1,000 per year. Also, you need to
Purchase of the first house property
invest at least once in a financial year.
Treatment of any of the specified life-
Tier -II NPS account is an open-access account
threatening diseases such as cancer,
with all the investment benefits except tax-
kidney failure, heart surgeries, etc.
saving and lock-in hurdles as Tier -I account.
Withdrawal at the time at or after the age of
Only limits in the Tier -II NPS account is for a
60:
minimum investment in a year, which has to
be as given below: The NPS Tier-I account matures once you
reach the age of 60. At maturity, you have
The account can be started with a
two options – withdraw or stay invested. If
minimum contribution of Rs. 1,000
you want to withdraw any time after 60, you
Minimum one contribution of Rs. 250 per can withdraw only up to 60% of the corpus
year is required in a lump sum, free from tax. The remaining
must be invested into an immediate annuity
Minimum account balance at the end of a
plan.
financial year should be Rs. 2,000
Investment Options:
There is no limit to how much you can save
or withdraw from the account or when. Five Asset Choices: You can invest
your retirement savings in a mix of
However, there are no tax benefits either,
these assets – Equity, Corporate debt,
however if you want take tax benefit out
Government Debt, Alternate Assets like
investment in Tier-II account now it is allowed
gold and real estate.
under section 80C overall limit subject to
lock in period of three years. Limits to the Asset Class: Your maximum
equity allocation cannot exceed 75%
Nomination Facility:
of your total portfolio. the maximum
Subscriber can give three nominees and allocation to the alternate asset will be
allot percentage to each nominee as per his limited to 5%.
choice,
Limits to Choose of Allocation: You
About Withdrawals from Tier-I Account: can either choose one of the automatic
lifecycle-based portfolios or manually
You can withdraw the funds from Tier-1 NPS
decide the ratios of asset allocation.
account upon retirement, resignation or in
In case you want to decide the asset
the case of death, your family members can
allocation, it’ll be subject to the conditions
withdraw. However, in case of resignation
above only until the age of 50.
before the age of 60 you can only withdraw
up to 20% of the corpus in a lump sum, rest After 50 your equity allocation starts to
decline and by the age of 60, you cannot
should be invested in an immediate annuity
have more than 50% of your portfolio
account for a pension.
into an equity fund.
You can also withdraw partially before
Automatic Portfolio Management:
maturity or resignation, but only after you
have stayed invested for at least 3 years. You NPS account offers automated portfolio
can withdraw only up to 25% of the corpus management based on your age and risk
built from your own contributions under the appetite. You have three lifecycle portfolio
following circumstances: choices in the declining risk order:
www.icmai.in BFSIB - Monograph - January 2022 19 LC50 – Moderate Lifecycle Fund:
Age in Years Max. equity allocation
Maximum equity allocation 50% up to the
Upto 50 75%
maximum age of 35
51 72.50%
52 70% Age Asset Asset Asset
Class E Class C Class G
53 67.50%
Up to 35 50 30 20
54 65%
years
55 62.50%
36 years 48 21 23
56 60%
37 years 46 28 26
57 57.50%
38 years 44 27 29
58 55%
39 years 42 26 32
59 52.50%
40 years 40 25 35
60 and above 50%
41 years 38 24 38
LC75 – Aggressive Lifecycle Fund:
42 years 36 23 41
Maximum equity allocation 75% up to the
43 years 34 22 44
maximum age of 35
44 years 32 21 47
Age Asset Asset Asset
45 years 30 20 50
Class E Class C Class G
46 years 28 19 53
Up to 35 75 10 15
47 years 26 18 56
years
48 years 24 17 59
36 years 71 11 18
49 years 22 16 62
37 years 67 12 21
50 years 20 15 65
38 years 63 13 24
51 years 18 14 68
39 years 59 14 27
52 years 16 13 71
40 years 55 15 30
53 years 14 12 74
41 years 51 16 33
54 years 12 11 77
42 years 47 17 36
55 years 10 10 80
43 years 43 18 39
& above
44 years 39 19 42
LC30 – Conservative Lifecycle Fund:
45 years 35 20 45
Maximum equity allocation 30% up to the
46 years 32 20 48
maximum age of 35
47 years 29 20 51
Age Asset Asset Asset
48 years 26 20 54
Class E Class C Class G
49 years 23 20 57
Up to 35 25 45 30
50 years 20 20 60
years
51 years 19 18 63
36 years 24 43 33
52 years 18 16 66
37 years 23 41 36
53 years 17 14 69
38 years 22 39 39
54 years 16 12 72
39 years 21 37 42
55 years 15 10 75
40 years 20 35 45
& above
41 years 19 33 48
20 BFSIB - Monograph - January 2022 www.icmai.inMaking the National Pension System (NPS)
42 years 18 31 51
more attractive for subscribers joining
43 years 17 29 54
it after 65 years of age, the PFRDA has
44 years 16 27 57 permitted them to allocate up to 50 per cent
45 years 15 25 60 of the funds in equity. The maximum equity
exposure, however, will be only 15 per cent if
46 years 14 23 63.
subscribers joining NPS beyond the age of 65
47 years 13 21 66
years decide to invest under the default ‘Auto
48 years 12 19 69 Choice’.
49 years 11 17 72
4) Premature exit
50 years 10 15 75
The PFRDA further said exit before the
51 years 9 13 78 completion of three years will be treated as
52 years 8 11 81 ‘premature exit’. Under premature exit, the
“subscriber is required to utilise at least 80
53 years 7 9 84
per cent of the corpus for purchase of annuity
54 years 6 7 87
and the remaining can be withdrawn in alump
55 years 5 5 90 sum”. In the case of premature exit, if the
& above corpus is less than Rs.2.5 lakh, the subscriber
may opt to withdraw the entire accumulated
In all these three options after the age of 35,
amount in one go.
your equity and corporate debt allocation
start to decline while allocation to government 5) Defer NPS account till 75 years
debt securities grows.
NPS account holders have been permitted to
Recently, there were several changes to NPS defer their account up to the age of 75 years.
rules which are as under
6) Extension of the online exit process to
1) Entry age increased the Government sector
The pension fund has revised the guidelines PFRDA recently extended the online and
on entry into NPS to 70 years. Earlier the entry paperless process of exit to the subscribers
age was 65 years. The entry age for NPS has of the Government Sector. Earlier, only non-
been revised to 18-70 years from 18-65 years. government sector subscribers enjoyed the
Any Indian citizen and Overseas Citizen of end-to-end facility of the online exit process.
India (OCI) in the age group of 65-70 years “The online exit would be integrated with
can also join NPS and continue up to the age Instant Bank Account Verification as per
of 75 years, according to a PFRDA circular on the existing guidelines as part of enhanced
the revised guidelines. due diligence in the interest of Subscribers.
The facility would also be available to the
2) Exit norms revised
employees of Autonomous Bodies of Central/
On the exit conditions for subscribers joining State Government who are covered in NPS.
NPS beyond the age of 65 years, the circular “the regulator said in a circular dated 4
said “normal exit shall be after 3 years”. “The October 2021.
subscriber will be required to utilise at least
7) Change In investment Pattern:
40 per cent of the corpus for purchase of
annuity and the remaining amount can be PFRDA has recently allowed subscribers of
withdrawn as a lump sum,” it said. However, the National Pension System (NPS) scheme to
if the corpus is equal to or less than Rs.5 lakh, change investment pattern as many as four
the subscriber may opt to withdraw the entire times during a financial year as which was
accumulated pension wealth in a lump sum, earlier only two times.
it said.
In short, we can say the NPS is most suitable
3) Asset allocation norms changed option for retirement planning.
www.icmai.in BFSIB - Monograph - January 2022 21CA Ajith Sivadas
Practicing Chartered Accountant
Income Tax Deductions and Exemptions –
National Pension Scheme
As per the “Restructured Defined lakh under section 80 CCE of the Income Tax
Contribution Pension System” Act.
applicable to the new entrants of
From F.Y. 2015-16 the quantum of deduction
the Government Service, it is mandatory for
on amount deposited by an employee in his
persons entering the service of the Central
pension account is subjected to a maximum
Government, on or after 1st January, 2004,
of 10% of his salary. The deduction in the
to contribute 10% of their salary every month
case of a self- employed individual would be
towards their pension account. A matching
restricted to 20% of his Gross Total Income
contribution is required to be made by the
in the previous year.
Government to the said account too. The
benefit of this scheme is also available to 2. Additional Deduction u/s 80 CCD (1B)
individuals employed by any other employer
In addition to the deduction allowed under
as well as to self-employed individuals.
section 80CCD(1), i.e. beyond 80CCE limit
Various deductions and exemptions available
of 1.5 Lakhs, for contribution to NPS Tier I
under Income Tax provisions regarding NPS
account, an additional deduction subject
are as follows:-
to a maximum of Rs. 50,000 under section
1. Employees / Self Employed Contribution 80CCD (1B) is also available.
to NPS
3. Employers Contribution to NPS
Section 80CCD of Income Tax Act, 1961,
Employer’s contribution towards NPS Tier-I is
provides for deduction in respect of
taxable under the head income from salary
contribution made to the pension scheme
u/s 17(1) but is eligible for tax deduction
notified by the Central Government.
under Section 80CCD (2) of the Income Tax
Accordingly, in exercise of the powers
Act 1961 (Eligible deduction amounts to14%
conferred by section 80CCD(1), the Central
of salary for Central Government employees
Government has notified the ‘Atal Pension
and 10% for others). This rebate is over and
Yojana (APY)’ as a pension scheme.
above the limit prescribed under Section
Employee’s own Contribution towards NPS
80CCE. Employer’s Contribution towards
Tier- I would qualify for deduction under
NPS up to 10% of salary (Basic + DA) is a
section 80CCD in the hands of the individual
deductible ‘Business Expense’ from the
falling within the overall ceiling of Rs. 1.50
Profit & Loss Account.
22 BFSIB - Monograph - January 2022 www.icmai.in4. Deemed Income Minimum 40% of the amount utilized
for purchasing an annuity from the
The amount standing to the credit of the
Annuity Service Provider, registered and
assessee in the pension account (for which
regulated by the Insurance Regulatory
deduction has already been claimed by him
under this section) and accretions to such and Development Authority (IRDA) and
account, shall be taxed as income in the year empanelled by PFRDA is also exempt
in which such amounts are received by the from tax.
assessee or his nominee on -
6. Tier 1 and Tier 2 Schemes – points to
closure of the account or
be noted.
his/her opting out of the said scheme or
The major difference between Tier 1 and Tier
receipt of pension from the annuity plan 2 NPS is that for the first one, it is mandatory
purchased or taken on such closure or to pay at least once every year and there
opting out.
are also restrictions with respect to lock in
However, the amount received by the period and withdrawal. Such rules do not
nominee on the death of the assessee apply to NPS Tier 2 due to its ‘no lock-in
under the circumstances referred to in (a) period’ feature. Hence, account holders have
and (b) above, shall not be deemed to be the freedom to skip a year in case they are a
the income of the nominee. little short of money. Whereas in respect of
the taxation perspective, NPS Tier 1 scheme
5. Withdrawal / Closure
has the following advantages over NPS Tier 2
Any payment from National Pension
scheme which is listed below:-
Scheme Trust to an assesee on account
of closure or his/her opting out is Tax Benefits on Contribution: Tax
chargeable to tax. Whereas u/s sec 10 deduction of up to Rs. 1.5 lakhs under
(12 A), lump sum withdrawal up to 60% 80CCD(1) and Rs. 50,000 under 80CCD
of total pension wealth from NPS Tier-I (1B) is available only for Tier 1. Such
at the time of superannuation is tax deductions are not available in the case
exempt. of Tier 2 accounts.
Partial withdrawal made out of this
Taxation on Withdrawal: During
account during the tenure of service
maturity, exemptions are available as
by employee subject to conditions
mentioned earlier in NPS Tier 1 account.
specified in Pension fund Regulatory
On the other hand, if you opt for a Tier
and Development Authority Act, 2013 is
2 account, the entire corpus gets added
exempt from tax up to 25% of amount
to the investor’s taxable income and is
contributed by the assessee as stated u/s
taxed at the Income Tax slab rate.
10(12 B).
www.icmai.in BFSIB - Monograph - January 2022 23THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
Statutory Body under an Act of Parliament
www.icmai.in
Headquarters
CMA Bhawan, 12 Sudder Street, Kolkata - 700016
Ph: +91-33-2252 1031/34/35/1602/1492
Delhi Office
CMA Bhawan, 3 Institutional Area, Lodhi Road, New Delhi - 110003
Ph: +91-11-24666100
Behind every successful business decision, there is always a CMA