February 2018

Friday, 9 February 2018

Pradhan Mantri Vaya Vandana Yojana - PMVVY

GOI has launched the Pradhan Mantri Vaya Vandana Yojana (PMVVY) with an aim to provide regular and assured pension to senior citizens. Because of the advantage of assured pension, PMVVY scheme shields the senior citizens against a future fall in their interest income due to uncertain market conditions.

PMVVY launch and end dates

Pradhan Mantri Vaya Vandana Yojana was launched on 4th May, 2017 and initially meant to be available for one year from launch date i.e. 3rd May, 2018. In Budget, 2018 it is proposed to extend PMVVY scheme till March, 2020.

Eligibility for PMVVY

Pradhan Mantri Vaya Vandana Yojana is available to all citizens of India aged 60 years and above. So minimum age to enter this scheme is 60 years, there is no maximum age for entry though.

How to purchase PMVVY

LIC of India is managing this scheme so it can be purchased only through LIC. PMVVY scheme can be purchased both offline or online. If you wish to purchase the scheme online you can do it by log in LIC website – www.licindia.in.

PMVVY duration and pension options

PMVVY policy term is 10 years, so you will get pension for 10 years from the date of purchase.

Options for the frequency when the pension is paid are-

monthly
quarterly
half yearly
yearly

The pension payment shall be through NEFT or Aadhaar Enabled Payment System.

PMVVY purchase price and pension amount

As per the current structure minimum and maximum amount of pension you can get under PMVVY is Rs. 1000 and Rs. 5000.

The minimum and maximum purchase price under different modes of pension will be as under:

Mode of Pension	Minimum Purchase Price	Maximum Purchase Price
Yearly	Rs. 1,44,578/-	Rs. 7,22,892/-
Half-yearly	Rs. 1,47,601/-	Rs. 7,38,007/-
Quarterly	Rs. 1,49,068/-	Rs. 7,45,342/-
Monthly	Rs. 1,50,000/-	Rs. 7,50,000/-

So you can see the maximum amount you can invest is Rs. 7,50,000 as per current structure.

The purchase price has to be paid lump sum. The scheme is exempted from Goods and Services Tax (GST).

Note that Budget, 2018 proposed to increase the PMVVY investment limit from 7.5 Lakhs to 15 Lakhs, correspondingly maximum pension amount will also increase to Rs. 10,000 monthly.

Note that total amount of pension under all the policies allowed to a family under this plan shall not exceed the maximum pension limit. The family for this purpose will comprise of pensioner, his/her spouse and dependents.

Sample Pension rates

For calculation of pension you will get for the invested amount, you can use the following sample pension rates.

The pension rates for Rs.1000/- Purchase Price for different modes of pension payments are as below:

Yearly: Rs. 83.00 p.a.
Half-yearly: Rs. 81.30 p.a.
Quarterly: Rs. 80.50 p.a.
Monthly: Rs. 80.00 p.a.

So you can calculate that for getting Rs. 1,20,000 pension yearly (With new limit) you need to invest Rs. 14,45,783.

Interest rate

The biggest draw of the PMVVY is the assured return. Based on the above figures you can see that the return you get for monthly pension is 8% where as for yearly pension it is 8.3%. For quarterly it will come to 8.05% and half yearly pension interest rate is 8.13%.

Tax on PMVVY

There is no tax benefit available on the invested amount. On the contrary pension amount you get is taxable. The pension amount is added to your yearly income and taxed as per the applicable slab.

Only tax relief you get is that the scheme is exempted from Goods and Services Tax (GST).

Pradhan Mantri Vaya Vandana Yojna Benefits

Pension payments – Pensioner will get the pension amount for the policy term of 10 years. The pension amount received and the frequency depends on the chosen amount (Rs. 1000 – Rs. 5000, will increase to Rs. 10,000 as per budget, 2018 announcement) and frequency (Monthly, quarterly, half-yearly, yearly).
In case of death of the subscriber – In case of death of the policy holder during the policy term of 10 years, the purchase price shall be refunded to beneficiary.
Maturity benefit - On survival of the subscriber to the end of the policy term of 10 years, purchase price along with final pension instalment shall be payable to the policy holder.

Pre-mature exit from PMVVY

You can pre-maturely exit from PMVVY during the policy term under exceptional circumstances like the pensioner requiring money for the treatment of any critical illness of self or spouse. The Surrender Value payable is 98% of purchase price in such cases.

Loan from PMVVY

You can apply for loan after completion of 3 policy years. The maximum loan that can be granted shall be 75% of the purchase price. The rate of interest to be charged for loan amount shall be determined at periodic intervals. For the loan sanctioned in Financial Year 2016-17, the applicable interest rate is 10% p.a. payable half-yearly for the entire term of the loan.

Should you opt for PMVVY

Based on the information provided you can make an informed decision whether it is a good scheme for you. To summarize let’s try to put the bad points and good points in black and white.

Good points-

Assured pension, provides a regular, fixed source of income with no risk of fluctuations.
Backed by Government of India.
Provides an assured return of 8% to 8.3% depending on the frequency.
Provides option for taking loan or surrendering the policy in exceptional circumstances.
Provides an option to invest your retirement corpus for regular income. Proposal to increase investment limit to Rs. 15 lakhs brings the scheme at par with another investment scheme, Senior Citizen Saving Scheme (SCSS). So there are two options for senior citizens to get assured returns.

Bad points-

Amount of pension is low, maximum is Rs. 5000 monthly (May increase to Rs. 10,000 as per the proposal in budget, 2018).
Rate of return is fixed, if rates start moving upward in near future that will result in a loss.
Income is taxable.

That's all for this topic Pradhan Mantri Vaya Vandana Yojana - PMVVY. If you have any doubt or any suggestions to make please drop a comment. Thanks!

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Thursday, 8 February 2018

Atal Pension Yojana - APY

Atal Pension Yojana (APY) is a pension scheme open to all citizens of India with main focus on unorganized sector workers. Since unorganized sector workers are not covered under any social security scheme, APY scheme is started to help them to save money for the old age.

The biggest draw of Atal Pension Yojana is the guaranteed minimum pension at the age of 60 years based on the opted amount and the contribution by the subscriber. APY is administered by the Pension Fund Regulatory and Development Authority (PFRDA).

Eligibility for APY

Any citizen of India can subscribe to APY scheme. The eligibility criteria that you must fulfill is as follows-

You should be between 18 and 40 years of age.
You should have a saving bank account. If you don’t have a bank account then you need to open one.
You should have a mobile phone and the number of your mobile should be registered with your bank account.

Pension amount received under APY

One of the biggest advantage of APY is the guaranteed minimum pension. Based on your contribution you will get a guaranteed minimum pension of Rs 1,000/-, 2,000/-, 3,000/-, 4,000 and 5,000/- per month after the age of 60 years.

Here note that the minimum pension is guaranteed by the government so the amount you opted for will definitely be given to you as pension. However, if higher investment returns are received on the contributions of subscribers of APY, higher pension would be paid to the subscribers.

Monthly contribution in APY

As already stated minimum age to subscribe to APY is 18 and maximum is 40 years. You need to contribute till the age of 60. So sooner you start less you need to pay as premium.

You premium also depends upon the pension amount you opt for out of Rs. 1000, 2000, 3000, 4000 or 5000 per month.

Here is a table courtesy PFRDA - http://pfrda.org.in//MyAuth/Admin/showimg.cshtml?ID=760 which shows the monthly, quarterly or half yearly contribution based on age.

		Minimum Guaranteed Pension of Rs. 1000/month			Minimum Guaranteed Pension of Rs. 2000/month			Minimum Guaranteed Pension of Rs. 3000/month			Minimum Guaranteed Pension of Rs. 4000/month			Minimum Guaranteed Pension of Rs. 5000/month
Return of corpus amount to the nominee		Rs. 1.70 Lakh			Rs. 3.40 Lakh			Rs. 5.10 Lakh			Rs. 6.80 Lakh			Rs. 8.50 Lakh
Age at entry	Vesting period	Monthly instalment	Qaurterly instalment	Half yearly instalment	Monthly instalment	Qaurterly instalment	Half yearly instalment	Monthly instalment	Qaurterly instalment	Half yearly instalment	Monthly instalment	Qaurterly instalment	Half yearly instalment	Monthly instalment	Qaurterly instalment	Half yearly instalment
18	42	42	125	248	84	250	496	126	376	744	168	501	991	210	626	1239
19	41	46	137	271	92	274	543	138	411	814	183	545	1080	228	679	1346
20	40	50	149	295	100	298	590	150	447	885	198	590	1169	248	739	1464
21	39	54	161	319	108	322	637	162	483	956	215	641	1269	269	801	1588
22	38	59	176	348	117	349	690	177	527	1045	234	697	1381	292	870	1723
23	37	64	191	378	127	378	749	192	572	1133	254	757	1499	318	948	1877
24	36	70	209	413	139	414	820	208	620	1228	277	826	1635	346	1031	2042
25	35	76	226	449	151	450	891	226	674	1334	301	897	1776	346	1121	2219
26	34	82	244	484	164	489	968	246	733	1452	327	975	1930	409	1219	2414
27	33	90	268	531	178	530	1050	268	799	1582	356	1061	2101	446	1329	2632
28	32	97	289	572	194	578	1145	292	870	1723	388	1156	2290	485	1445	2862
29	31	106	316	626	212	632	1251	318	948	1877	423	1261	2496	529	1577	3122
30	30	116	346	685	231	688	1363	347	1034	2048	462	1377	2727	577	1720	3405
31	29	126	376	744	252	751	1487	379	1129	2237	504	1502	2974	630	1878	3718
32	28	138	411	814	276	823	1629	414	1234	2443	551	1642	3252	689	2053	4066
33	27	151	450	891	302	900	1782	453	1350	2673	602	1794	3553	752	2241	4438
34	26	165	492	974	330	983	1948	495	1475	2921	659	1964	3889	824	2456	4863
35	25	181	539	1068	362	1079	2136	543	1618	3205	722	2152	4261	902	2688	5323
36	24	198	590	1169	396	1180	2337	594	1770	3506	792	2360	4674	990	2950	5843
37	23	218	650	1287	436	1299	2573	654	1949	3860	870	2593	5134	1087	3239	6415
38	22	240	715	1416	480	1430	2833	720	2146	4249	957	2852	5648	1196	3564	7058
39	21	264	787	1558	528	1574	3116	792	2360	4674	1054	3141	6220	1318	3928	7778
40	20	291	867	1717	528	1734	3435	873	2602	5152	1164	3469	6869	1454	4333	8581

Procedure for opening APY account

Since it is required to have a bank saving account for opening APY account so you need to approach the bank branch where you have an account or you can open a bank account.

Then fill up the APY registration form. Also register your mobile number/Aadhaar.

Each subscriber will be provided with an acknowledgement slip after joining APY which would invariably record the guaranteed pension amount, due date of contribution payment, PRAN etc.

A subscriber can open only a single APY account.

Co-contribution by the government

As an incentive to increase participation to APY government decided to co-contribute 50% of the total contribution or Rs. 1,000/- per annum, whichever is lower, to the eligible APY account holders who join the scheme during the period 1st June, 2015 to 31st December, 2015.The Government co-contribution will be given for 5 years from FY 2015-16 to 2019-20.

Eligibility for co-contribution by the government

In case you are wondering why you didn't get any co-contribution from the govt. they you must know that only those individuals are eligibe for co-contribution by the givt. who are not covered by any Statutory Social Security Schemes and are not income tax payers.

For example, members of the Social Security Schemes under the following enactments would not be eligible to receive Government co-contribution:

Employees’ Provident Fund & Miscellaneous Provision Act, 1952.
The Coal Mines Provident Fund and Miscellaneous Provision Act, 1948.
Assam Tea Plantation Provident Fund and Miscellaneous Provision, 1955.
Seamens’ Provident Fund Act, 1966.
Jammu Kashmir Employees’ Provident Fund & Miscellaneous Provision Act, 1961.
Any other statutory social security scheme.

Nomination facility in APY

It is mandatory to provide nominee details in APY account.

Subscriber needs to provide the spouse details too wherever applicable. This will help spouse to maintain the APY account or keep getting pension in case of subscriber's death.

Their aadhaar details are also to be provided.

Withdrawal procedure from APY

Here are the APY withdrawal scenarios-

Completing the age of 60 years – You need to pay premium till the age of 60 years. Once you reach the age of 60 you can submit the request for drawing pension. The whole accumulated corpus is converted to annuity and subscriber starts getting monthly pension.
In case of subscriber's death after 60 years – In case of death of subscriber pension would be available to the spouse and on the death of both of them (subscriber and spouse), the accumulated pension corpus would be returned to his nominee.
Pre-mature withdrawal before the age of 60 – Pre-mature exit (before the age of 60) is permitted only in exceptional circumstances like in case of death of the subscriber or terminal illness.
In case of death of the subscriber before the age of 60 years, spouse would be given an option to continue contributing to APY account of the subscriber, for the remaining vesting period, till the original subscriber would have attained the age of 60 years.

Penalties in APY

In case of delay in premium payment of your Atal pension yojana account additional amount has to be paid. Rules for that are as follows-

Re. 1 per month for contribution upto Rs. 100 per month.
Re. 2 per month for contribution upto Rs. 101 to 500/- per month.
Re 5 per month for contribution between Rs 501/- to 1000/- per month.
Rs 10 per month for contribution beyond Rs 1001/- per month.

Discontinuation of payments of contribution amount shall lead to following:

After 6 months account will be frozen.
After 12 months account will be deactivated.
After 24 months account will be closed.

Also note that there are some charges incurred for maintaining the APY account. If you stop paying the premium amount and the account balance becomes zero due to deduction of account maintenance charges, the APY account would be closed immediately.

APY Tax benefits

As per the update in 2016, APY provides the same benefits as NPS. Which means that premium amount paid can be claimed under section 80CCD. Current Limit for 80CCD tax exemption is Rs. 50 thousand.

Reference: https://npscra.nsdl.co.in/nsdl/scheme-details/APY_Scheme_Details.pdf

That's all for this topic Atal Pension Yojana - APY. If you have any doubt or any suggestions to make please drop a comment. Thanks!