If you are enrolled with NPS and want to know who gets the pension amount after the death of an individual, this article is for you. Read on to know more.
Overview
The National Pension Scheme (NPS) is a government-backed pension scheme in India that allows individuals to save for their retirement and provide financial security during their golden years. The scheme is open to all citizens of India between the ages of 18 and 60 and allows for contributions to be made on a regular basis, with the option to choose the level of risk associated with the investment.
The National Pension Scheme (NPS) aims to provide adequate financial assistance to the working population post-retirement, making it an ideal plan for anyone who desires peace of mind and comfort in uncertain times. It offers a range of features that are well-suited to meet life’s harsh realities, providing not only security for subscribers but also for their families in the event of any contingencies.
In this article, we will discuss how the nominee can claim the pension amount in case of the death of the subscriber. It is important to follow certain steps and provide the required documents to receive the pension amount as a legal heir or nominee.
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Features and Benefits of the NPS
The National Pension System (NPS) is a retirement savings scheme that was launched in India in 2004. The NPS scheme is designed to provide a regular income to subscribers after they retire.
The NPS offers a number of features and benefits, including:
- Flexibility: Subscribers can choose from a variety of investment options, including equity, debt, and hybrid funds.
- Tax benefits: Contributions to the NPS are eligible for tax deductions under Section 80C of the Income Tax Act.
- Guaranteed minimum pension: Subscribers who opt for a pension plan will receive a guaranteed minimum pension at the time of retirement.
- Portability: Subscribers can transfer their NPS account from one NPS service provider to another.
Role of Nomination in NPS
The nomination ensures that the accumulated pension wealth is distributed according to the subscriber’s wishes. The nominee(s) you designate will have the right to receive the pension wealth or annuity. It is advisable to review and update your nomination details periodically or whenever there are any changes in your circumstances.
Importance of Nominating Beneficiaries in the NPS Account
The answer to the question ‘Who Will Get Pension After Death in NPS?’ lies here.
It is important to nominate beneficiaries for your NPS account. By doing so, you can specify who will receive the accumulated pension wealth or annuity in case of your demise.
Note –
- If you do not have a family, you may support any individual or group of individuals when you make a nomination. However, if you later have a family, your original nomination will be determined null and void, and you will be required to make a new one on behalf of a member or members of your family.
- You can nominate one or more nominees and distribute the percentage of accumulated funds in such a way that the total of all such payouts equals 100%.
What Happens to NPS Pension After Death
After the demise of an NPS subscriber, the accumulated pension wealth is not paid as a pension to the nominee(s). Instead, it is usually provided as a lump sum amount or transferred to a specified account. The nominee(s) can then utilize the amount according to their requirements.
Alternatively, the nominee(s) may choose to invest the amount to receive a regular income by purchasing any of the annuities offered upon exit.
How to Claim the Pension as a Nominee?
It is important to note that the nominee or legal heir will not automatically receive the pension wealth upon the death of the subscriber. They will have to claim the pension wealth by submitting the necessary documents. These documents include,
- A death certificate to the pension fund manager.
- The original PRAN card has to be submitted as well. In case, it is not available an affidavit has to be submitted.
- A canceled cheque with the details of the claimant.
- The heir or nominee has to submit proof that they are the legal heir.
- The proof of address of the nominee or heir has to be submitted.
The pension fund manager will then process the claim and release the pension wealth to the nominee or legal heir.
The process of claiming the pension wealth can take several weeks or even months, depending on the pension fund manager and the documentation provided.
It is important for NPS subscribers to regularly update their nominee or legal heir details and to keep their pension fund manager informed of any changes in their personal information, such as their address or contact details. This will ensure that the pension wealth is passed on to the intended nominee or legal heir in a timely and efficient manner.
Tax Implications on NPS Withdrawal
The Pension Fund Regulatory and Development Authority (PFRDA) allows withdrawals from the NPS account upon maturity. Section 10(12A) of the Income-tax Act, 1961 provides an exemption for withdrawals from the NPS corpus. According to PFRDA rules, an NPS subscriber can withdraw a maximum of 60% as a lump sum, and the remaining 40% must be used to purchase an annuity. The lump sum withdrawal of 60% is exempt from income tax, while the annuity income is taxable based on the subscriber’s income tax slab rate in the year of receipt.
When it comes to partial withdrawals from an NPS account, different rules apply. 25% of the individual’s contribution in a partial withdrawal is exempt from income tax, and the remaining amount is taxable as ‘Income from other sources’ at the applicable income tax rate.
The PFRDA recently amended the rules to allow individuals to withdraw 100% of the corpus as a lump sum if the corpus value is Rs 5 lakh or less. However, there hasn’t been a corresponding amendment to the income tax laws, so the taxation exemption currently remains limited to 60%. Therefore, the remaining 40% of the corpus would be taxable upon withdrawal, even if 100% withdrawal as a lump sum is permitted by the PFRDA for a corpus of Rs 5 lakh or less.
For example, if the accumulated NPS corpus on maturity is Rs 4.80 lakh, as per PFRDA rules, one can withdraw 100% as a lump sum. However, only Rs 2.88 lakh would be exempt from income tax, and the remaining Rs 1.92 lakh would be taxable.
Regarding the purchase of annuity, upon maturity, if the accumulated corpus is over Rs 5 lakh, an individual is required to buy an annuity from a life insurance company by paying a lump sum amount. Income tax would be applicable on the annuity payments received.
Conclusion
The New Pension Scheme (NPS) provides an opportunity for individuals in India to save for their retirement and ensure financial security during their golden years. Upon the death of a subscriber, the pension wealth accumulated in the account is passed on to the nominee or legal heir of the subscriber.
They have the option to either withdraw the pension wealth as a lump sum or use it to purchase an annuity. It is crucial for NPS subscribers to keep their nominee or legal heir details updated with their pension fund manager to ensure that the pension wealth is passed on to the intended nominee or legal heir in a timely and efficient manner.
If you need any help with NPS or claiming the NPS pension after the death of an individual you can contact Vakilsearch. The team of experts at Vakilsearch will guide you throughout the process and make it simple for you.
FAQ:
What happens to pension fund after death?
The pension fund accumulated in the NPS is not continued as a pension after the subscriber's death. It is generally provided to the nominee(s) as a lump sum or used to purchase an annuity.
Can a nominee get pension after death?
No, a nominee does not receive a pension. The nominee(s) is entitled to receive the accumulated pension wealth as a lump sum or can opt to purchase an annuity.
Where Do I Send Nps Death Claim Form?
To claim the NPS benefits after the subscriber's death, the nominee(s) or legal heir(s) should physical form to the subscriber's nodal office. They then will guide you through the process.
What documents are required for NPS death claim?
Commonly required documents include the death certificate, identity proof of the nominee(s) or legal heir(s), the claim form, and any other supporting documents as requested by the NPS authority.
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