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National Pension System Scheme


The NPS is a social security program by the Central Government. This welcome initiative is open to employees from the public, private and even the unorganised sectors, excluding the armed forces.

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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

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 Rs. 1.5 lakh U/s 80 CCE
80 CCD(1B)Individual Subscriber's contribution upto Rs. 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)

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

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,
ParticularsTier ITier II
Minimum Contribution required at the time of account openingRs.500/-Rs.1000/-
Minimum Subsequent Contribution amount requiredRs.500/-Rs.250/-
Minimum contribution required per yearRs.1000/-NIL
Minimum number of contributions required in a year1NIL

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Recent Updates

National Pension System Provides Tax Benefits For Private-sector Employees

Jan 2, 2021

Initially introduced as a pension scheme for Central Government employees in 2004, the National Pension Scheme has been available to every Indian citizen since 2009. As per the new tax regime, it will provide several tax benefits to private-sector employees.

Zero tax liability for income up to Rs 2.5 lakh, 5% tax for income category between Rs 2.5 lakh to Rs 5 lakh, 10% for income between Rs 5 lakh to Rs 7.5 lakh, 15% for income between Rs 7.5 lakh to Rs 10 lakh; 20% for income between Rs 10 lakh and up to Rs 12.5 lakh; 25% for income between Rs 12.5 lakh to Rs 15 lakh, and 30% tax for income above Rs 15 lakh.

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