National Pension System Scheme
The National Pension System (NPS) Scheme is a pension program launched by the Indian government to assist citizens with their savings, meant to go towards their later years post-employment. Eligible citizens regularly contribute an amount into a pension account in order to receive the benefits of such savings during their retirement.
The NPS is available to citizens between the ages of 18 and 60 as of 2009. The objective of the scheme is to ensure that citizens earn a decent return on their investments after retirement. The NPS is available in two types of accounts:
- Tier-I NPS Account: this is a basic pension account with limitations of the amount allowed for withdrawal
- Tier-II NPS Account: there are no limitations on withdrawals for this type of account
Checklist
The NPS is open to both residents and NRIs who meet the following eligibility criteria:
- The applicant should be at least 18 years old and less than 65 years old
- The applicant should be of sound mental health
- The Know Your Customer (KYC) rules and conditions listed on the registration form should be adhered to by the applicant before signing the form.
Who Should Invest in the NPS?
National Pension System (NPS) is a government-sponsored pension scheme. It is open for all Indian citizens and can be accessed by every resident and non-resident Indians between 18-60 years of age. Nps is an ideal investment option for individuals who are looking for a retirement corpus with safety and market-linked returns.
NPS Eligibility
The National Pension System is open to all Indian citizens between 18-60 years of age. The following categories of individuals can also invest in NPS:
- Employees of the central and state governments
- Self-employed individuals
- Unorganised sector workers
- Non-Resident Indians (NRIs) are also eligible to join Nps, subject to certain conditions.
Benefits
The NPS is a solution towards planning for one’s retirement, and is the government’s recommended means to provide for a pensioner’s income in their old age with reasonable and respectable market-based returns. It is based on an individual and unique Permanent Retirement Account Number (PRAN) that is allotted to every subscriber under the NPS.
An NPS account offers pensioners the following benefits:
- Government Regulated: NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) under the government of India
- Online presence: One can register and access their NPS account online, thus making it very convenient. There is also an app available for smartphones with all the features made available online
- Control and flexibility: Subscribers have control over their investments, allowing them the ability to take calculated risks aimed at higher returns as well as allowing them to choose their investment option, fund manager, annuity service provider, and annuity option.
- Long term returns: NPS is a long-term investment plan with a minimum lock-in period of 10 years, giving the subscriber the benefits of compounded returns, which consequently leads to a higher corpus fund upon maturity.
- Tax Benefits: NPS investments offer lucrative tax benefits, such as,
80 CCD(1) Individual Subscriber's contribution can claim tax benefit U/s 80 CCD(1) with in the overall ceiling of ₹1.5 lakh U/s 80 CCE 80 CCD(1B) Individual Subscriber's contribution upto ₹50,000 is eligible for tax exemption U/s 80 CCD(1B) 80 CCD(2) Corporate Contribution (Contribution made by the employer on behalf of the employee) made upto 10% of the employee's basic salary is eligible for tax exemption U/s 80 CCD(2)
How to Open an NPS Account
The National Pension System (NPS) is a voluntary, defined contribution pension scheme offered by the government of India. To open an Nps account, you can follow either the offline process or the online process.
Offline Process
- You can visit a Point of Presence (POP) authorised by the Pension Fund Regulatory and Development Authority (PFRDA)
- You need to fill in the required form, submit your Know Your Customer (KYC) documents and your Permanent Account Number (PAN) card
- You need to make an initial contribution of ₹500 to activate your account
- Once the application is processed, you will receive a Permanent Retirement Account Number (PRAN) card.
Online Process
- Visit the NSDL or Karvy CRA website, which are the central record-keeping agencies for NPS
- Fill in the required details and select the POP and Pension Fund Manager (PFM)
- Submit the KYC documents and make an initial contribution of ₹500
- Once the application is processed, you will receive a PRAN card.
Steps to Open an NPS Account Online
You can enrol for NPS through the National Securities Depository Ltd. (NSDL) website or by clicking on the 'National Pension System' tab:
- You will then receive an online form that needs to be filled out
- Upon submission of the form, a receipt number for your registration will be generated. You will also be able to complete your account registration later by using this receipt number search
- Your e-KYC will be done through Aadhaar (using an OTP based authentication)
- You will then be required to enter more details, such as your bank details, scheme details, nominee details and so on
- You then need to upload a passport photograph and your signature. For a Tier II account, you will also need to scan and upload your PAN card and a cancelled cheque.
- You will then need to enter the amount you would like to invest in NPS and click for payment
- You will then be directed to an online payment platform where you would need to complete the payment over net banking
- Upon your payment going through successfully, a PRAN would be allocated to you and a PDF form will be generated based on the data you have given. This can be saved for reference and need not be sent in separately, but this is only applicable for instances of Aadhaar-based NPS account opening. The slabs based on the NPS account opening contribution are,
| Particulars | Tier I | Tier II |
|---|---|---|
| Minimum Contribution required at the time of account opening | ₹500/- | ₹1000/- |
| Minimum Subsequent Contribution amount required | ₹500/- | ₹250/- |
| Minimum contribution required per year | ₹1000/- | NIL |
| Minimum number of contributions required in a year | 1 | NIL |
Types of NPS Account
Tier-I Account: This is a mandatory account and the primary account in the Nps scheme. Withdrawals from this account are permitted only after the account holder turns 60 years of age or in case of certain medical conditions
Tier-II Account: This is a voluntary savings account that allows you to withdraw money whenever you want. However, you need to have an active Tier-I account to open a Tier-II account.
Features & Benefits of NPS
- Nps is a low-cost investment option that allows you to accumulate a substantial corpus over the long term
- It provides you with the option to choose from a variety of investment options
- Tax benefits are available on both contribution and withdrawal
- The accumulated wealth can be used to purchase an annuity after retirement.
NPS Scheme Benefits in Income Tax
- Contributions made towards Nps are eligible for tax deduction under Section 80CCD(1) of the Income Tax Act, up to a maximum of 10% of the gross total income or ₹1.5 lakh, whichever is lower
- An additional deduction of up to ₹50,000 is available under Section 80CCD(1B) for contributions made towards NPS
- On maturity, you can withdraw up to 60% of the corpus as a tax-free lump sum, and the remaining 40% must be used to purchase an annuity plan.
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