National Pension Scheme

What is National Pension Scheme?

A national pension scheme or NPS is a voluntary long-term investment plan in India. It is made to support the individual after their retirement. A major benefit is getting tax advantages. It is an attempt toward a sustainable solution to the problem of providing adequate retirement income to every citizen of India. This retirement benefits scheme was introduced by the Government of India to facilitate a regular income after retirement for all the subscribers. It is administered and regulated by PFRDA.

• AUM: INR 603,667.02 crore (US$79 billion) (2021)
• Founder: Government of India
• Head Quarters: New Delhi
• Key People: Munish Malik (CEO)

Salient Features and Benefits of NPS (National Pension Scheme)

• Tier I – Pension account (Mandatory A/C – Tax benefit available)
• Tier II – Investment account (Optional A/C – No tax benefit but corpus is withdrawable anytime)
• NPS is one of the lowest-cost and most economical investment products available in the market
• NPS offers to invest any amount in your NPS account at any time. It is a voluntary scheme for all citizens of India.
• Minimum Contribution while A/C opening is Rs.500 for Tier I
• Minimum Contribution while A/C opening is Rs.1,000 for Tier II
• Subscribers may have the flexible option to select a Pension Fund Manager (PFM) of their choice. Subscriber is also allowed to change Pension Fund Manager (PFM) once in a Financial Year. Subscribers may also have the option to define their asset allocation, which may be changed four-time in a given Financial Year.
• A very low-cost product with Fund Management Charges of 0.03-0.09%.
• PRAN  is the unique number provided by the NPS managing authority, this will remain the same irrespective of change in employment.
• NPS account holders have the option to transfer their Superannuation funds to their NPS account without any tax implication
• Subscribers have the option to withdraw the total accumulated corpus is less than Rs.5 Lacs on attaining the age of 60

NPS (National Pension Scheme) Eligibility

• Anyone can avail of this facility whose age is between 18 to 70 years
• All citizens of India including Non-Resident Indians (NRIs)
• Individuals are covered under any pension scheme.

Tax Benefits Under the NPS (National Pension Scheme)

NPS offers triple tax benefits which are as follows-

Tax benefits for Salaried Individual

Eligible for tax deduction up to 10% of Salary (Basic + DA) under Section 80 CCD(1) within the overall ceiling of Rs. 1.50 lacs under Sec 80 CCE. The employee is eligible for tax deduction up to 10% of Salary (Basic + DA) contributed by the employer under Sec 80 CCD(2) over and above the limit of Rs. 1.50 lacs provided under Sec 80 CCE

Tax Benefits for Self Employed Individuals

Eligible for tax deduction up to 10 % of gross income under Sec 80 CCD (1) within the overall ceiling of Rs. 1.50 lacs under Sec 80 CCE. Subscriber is allowed the deduction in addition to the deduction allowed under Sec. 80CCD(1) for additional contribution in his NPS account subject to a maximum investment of Rs. 50,000/- under sec. 80CCD 1(B)

Types of NPS Account

There are two types of accounts in the NPS

Tier 1 NPS account:

You can avail all the tax benefits under the tier 1 account.

Tier 2 NPS account:

There are some advantages you can avail such as there is no lock-in period, you can invest as you want and withdraw your amount whenever you want, no minimum investment, and you can invest INR 10/- instead of INR 500/- but there is a catch here, that you are not going to receive any benefits on tax. This is fully taxable which means this is similar to a Mutual Fund because if we do not talk about ELSS. then mutual fund works exactly like this. Invest as much as you want and withdraw whenever you want. When you withdraw it will be considered as income and tax will be levied on that, to create a tier 2 account you need to have a tier 1 account that should be active, or else you will not able to get a tier 2 account opened.

NPS Account Opening Contribution:
Particulars	Tier I	Tier II
Minimum Contribution required at the time of account opening	INR 500/-	INR 1000/-
Minimum Subsequent Contribution amount required	INR 500/-	INR 250/-
Minimum contribution required per year	INR 1000/-	Nil
Minimum number of contributions required in a year	1	Nil

How to open an NPS Account?

Now the question is how do you open the account? You need to go to any bank and tell them you want to open an NPS account, submit your necessary documents, and your account will be opened. Thereafter bank will provide you with a PRAN ( permanent retirement account number) just like you have a PAN number and this is quite similar to the EPF  UAN number, this means you will have one PRAN always and your contribution will be mapped under the same thing.

And if you are in favor of promoting digital India, then you can have an NPS account online which can be accessed by visiting the ENPS website.

Online Method to open NPS account

• Simply visit the website and provide your PAN number, date of birth, and your name while asking.
• Then move on to the next page where you are required to fill in your name, your father’s name, your mother’s name, your’s permanent address, and your correspondence address.
• On the next page, you are supposed to give access to the Adahar card and OTP sent to your registered mobile number. After providing OTP, your identity is verified, then you are asked to upload a digital signature.
• In the final screen, you are asked to validate your filled entries, once you submit the data, you are redirected to payment mode where you are asked to choose a payment method.
• There are multiple payment options (internet banking, UPI, debit card, credit card) that have been provided, you need to choose one which suits you best and invest your amount for a happy retirement.
• On successful payment, 12-digit PRAN will be allotted to you, and a PDF form will be generated.
• PRAN will be communicated to you via registered email and SMS.
• E-Sign/OTP – You will have to complete an online e-sign or OTP-based confirmation once the registration process is completed. This is to avoid the physical submission of the registration form.

FAQs

How much pension will I get in NPS?

A- If you purchase an NPS annuity of 50 Lakh, then you will get a monthly pension of INR 22, 231.

Who is eligible National Pension Scheme?

Any individual citizen of India (both resident and Non-resident) in the age group of 18-65 years

Which is better NPS or PPF?

NPS can deliver higher returns in the long term because it is linked with the market whereas PPF generates fixed returns on the fixed income.

Can I exit or withdraw accumulated amount from NPS after 1 year?

Yes, you are supposed to exit from NPS at any time and can withdraw your accumulated amount, if the pension corpus is equal to or less than Rs 5 lakh

What is the lock-in period for NPS?

The investments you make in NPS are locked in until the age of 60. After the age of 60, you can withdraw 60% of your investment. And the rest 40% must be invested in order to buy an annuity.

Which is better NPS Tier 1 or Tier 2?

your investment is locked for certain periods thereafter you can withdraw but during that time, there is the facility to withdraw the amount in tier 1 you will get tax benefits

How much can I invest in a year?

If you are planning to avail of tax benefits then you are supposed to invest at least Rs 50,000 in NPS every year under section 80CCD (1B).