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What Are Government Pension Scheme And What Are Their Advantages?

Updated On Oct 11, 2023

The Pension Fund Regulatory and Development Authority oversees and administers this scheme (PFRDA). The Indian government established it to give financial security to India's elderly. The GPS plan provides great long-term savings options, allowing an individual to manage his/her retirement time more effectively by investing in this secure market-based plan. 

What Are The Benefits Of Government Pension Plans?

All employees in the public, private, and unorganized sectors, with the exception of those in the Armed Forces, are eligible for the Government Pension Scheme, also known as the Government Pension System. Subscribers to the GPS plan must contribute a minimum of Rs.6,000 per year, which can be paid in one lump sum or in monthly installments of Rs.500. The contributions of the subscribers are invested in market-linked instruments in the GPS system, such as debt and equity, and the rewards are depending on the profitability of these assets. The current interest rate on NPS payments is between 8% and 10%. Any Indian citizen between the ages of 18 and 60 can create a Government Pension Scheme account. PFRDA regulates the Government Pension Scheme, which matures at 60 years old and can be extended to 70 years old. Members can withdraw up to 25% of their payments after three years of account setup in specific circumstances, such as buying a property, supporting a child's education, or treating serious ailments.

Government Pension Scheme (GPS) Benefits

The following are some of the benefits of the National Pension Scheme:

1. Returns/Interest

A portion of the GPS payment is invested in equities, which provide higher returns than typical tax-saving investments like the PPF. With an interest rate of 9 percent to 12 percent, this plan is best suited for people who want to develop money over time and live a financially secure life after retirement.

2. GPS Advantages

This GPS capability is also available to individuals. Section 80C of the Income Tax Act exempts payments to the GPS plan up to a maximum of Rs.1.5 lakhs from taxation. Furthermore, donations to the Government Pension Scheme by both the employer and the employee are tax-deductible.

3. Early Withdrawals and Exit Rules

Until you reach the age of 60, the Government Pension Plan GPS returns must be invested as a pension program. Partial withdrawals are authorized after three years from the date of account setup. Subscribers have the option of withdrawing up to 25% of their total gift amount. A premature withdrawal is only authorized in extraordinary circumstances, such as supporting a child's education, purchasing a property, or in the case of a medical emergency. Subscribers can withdraw up to three times at five-year intervals during the course of the contract. These rules apply only to Tier I accounts; Tier II accounts are exempt.

4. Equity Distribution Rules

National Pension Scheme is purchased through a different program. According to the equity allocation guideline, investors can only invest up to 50% of their money in shares. Investing options include active decision and automatic choice. On the one hand, active choice allows investors to select funds and divide their assets according to their risk appetite and appropriateness; on the other hand, auto choice invests based on the risk profile and age of the investor.

Take Away

Individuals may consider joining the GPS plan if the foregoing benefits match their risk profile and investment aim. If someone wants additional equity exposure, there are a variety of mutual funds that appeal to investors from many walks of life.

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