Worried about your future or looking for a source that will provide you benefit in your retirement years?
Here is one of the most flexible, portable, and voluntary schemes which would really help you in your old age.
What is NPS?
In India, NPS, the national pension system is defined as a contribution pension system. The national pension system, like EPS and PPF, is an instrument called EEE (EXEMPT-EXEMPT-EXEMPT) where the whole of the Corpus restricts tax at maturity, and also the entire pension withdrawal amount is free of tax.
It comes under a long-term investment plan for those who have been retired under the Central Government and pension fund regulatory and development authority (PFRDA).
NPS is a social security Scheme that is initiated by the Central Government. This program is open for all the employees from the private sector, the public sector, and also the unorganized sector (except the armed forces).
This scheme particularly motivates people to invest at regular intervals in a pension account during their employment. After the retirement of the employees, they can withdraw a small percentage of the Corpus.
As an NPS account beneficiary, you will get the remaining sum of the amount as a monthly pension after your retirement.
A few years ago, this scheme was restricted for employees of the Central Government but now the PFRDA has allowed it for all Indian citizens.
NPS holds an important value for everyone who is employed in the private sector and will require a regular pension after his or her retirement.
Who should invest in the NPS?
NPS is the best Scheme for one who desires to plan for their retirement at an early age and has a low-risk appetite.
A regular income (Pension) in the years of your retirement will be a boon to the employees and particularly to those employees retired from the private sector.
This scheme has the power to create a massive difference in the lives of employees Post-retirement.
Types of NPS account
Tier-1 account holds a deduction in tax up to Rs. 1.5 lakh in a year under Sec 80C and an additional sum of up to Rs. 50,000 in a year under Sec 80CCD (1B). This account is also called a non-withdrawable permanent retirement account.
On maturity i.e. at the age of 60, only 60% of the Corpus which is free of tax can be withdrawn and the other 40% is compulsorily used to purchase an annuity.
The remaining balance of 20% can be either withdrawn or can be used to purchase an annuity.
The tier-2 account is a voluntary saving cum- retirement account that can only be started if you have a tier-1 account. The subscribers are not bound to withdraw or invest their funds according to their preference. This account does not lead to a reduction in tax for self-employed people or employees of the private sector.
How to Open NPS Tier 1 Account?
NPS account can be open both online and offline. To open the account offline, the steps can be:
Step 1: Visit the branch of POP-SP i.e. Point of Presence-Service Providers such as banks.
Step 2: Fill in all the necessary details in the offline application form which is available at POP-SP.
Step 3: Attach the important documents along with the application form and submit them.
Step 4: Then invest any amount according to your preference.
To open an NPS account online, one must follow these steps:
Step 1: Log in to the official website of NPS https://www.npscra.nsdl.co.in/ and go on to the registration section.
Step 2: Fill up all the necessary details and authenticate with your registered mobile number through OTP.
Step 3: Choose the preferred account type and further select ‘Tier I’. Also, remember that a ‘tier II’ account cannot be opened without having a ‘tier I’ account.
Step 4: Choose a fund manager among the 8 fund managers of your choice.
Step 5: There are two modes of investment, select ant one between the two: active and auto mode. Auto mode rebalances and provides your portfolio according to your age whereas active mode keeps you under the charge to select the assets within your portfolio.
Step 6: Enter the information of the nominees and their share.
Step 7: Submit the details in the given format.
Step 8: Then you have to make the minimum contribution which is Rs. 500 to complete the registration.
Step 9: Your PRAN i.e. Permanent Retirement Account Number will be generated at the end of the process.
Features of NPS
It is a dynamic scheme which is launched by the Government of India to assist all the residents to plan their future according to their preference.
NPS Scheme has been initiated for the people of India between the age group of 18 to 65 years particularly working in the public, private and unorganized sector.
This Scheme usually provides flexibility to the residents to land their funds temporarily in this scheme via a tier-2 account. The citizens are allowed to open their accounts with a low investment of Rs 500 initially and Rs 1000 in a year. The Scheme provides the flexibility of choosing a fund manager to monitor the performance.
Citizens have the access to operate their accounts from anywhere at any time with the availability of a vast network of pops.
This scheme ensures the employees to be financially independent after their retirement.
Pension funds listed under NPS
For managing the deposit of NPS, 8 fund managers are bound to maximize the returns of the applicants.
HDFC Pension Management Co. Ltd
Birla Sun Life Pension Fund Ltd
Kotak Mahindra Pension Funds Ltd
LIC Pension Fund Ltd
Reliance Capital Pension Fund Ltd
SBI Pension Fund Pvt. Ltd
UTI Retirement Solutions Ltd
ICICI Prudential Pension Fund Management Ltd
How to open an e-NPS account?
The beneficiaries of NPS can now open their e-NPS account easily If their bank account is under the 17 banks list of NSDL (National Securities Depository Ltd). There are majorly 2 ways to open e-NPS accounts i.e via Aadhar and Pan Card. So if your Pan card is registered to your account, you can apply for the e-NPS account by just logging in to the e-NPS official website. After that, the KYC of your account will be a headache for your bank. Further processing of your application will also take care of by your bank.
The second way of opening an e-NPS account is through the Aadhar card. The PFRDA ( Pension Fund Regulatory Authority) had shown a green signal to the Aadhar card and approved it as an e-KYC on 17th February 2016. For opening an e-NPS account your Aadhar card should have to be linked with your mobile and saving account number. The mobile number which is linked with your Aadhar will receive an OTP for verification!
How to open an NPS account (online)?
If you want to open your NPS account online there are two ways
- By using an Aadhar card
- By using Pan card
Registering via Aadhar card
- The Aadhar card number should be registered with your phone number.
- You will receive an OTP on your registered mobile number for authentication. NPS KYC is done through the OTP.
- Your Aadhar database provides your data along with your picture. This data is used in the NPS online form.
- The Rest of the information has to be filled by the beneficiary itself.
- For the registration, you will have to upload your signature in .jpg or .jpeg format. The size of the file should be between 4kb to 12kb.
- You can change your picture by uploading a new one if you don’t want an Aadhar card picture in your NPS account.
- After that, you can make transactions from your NPS account through Net Banking or credit/debit card.
Registering via Pan card
- If you’re registering via Pan card, your KYC will be done by Bank. The only condition is that your bank should be on the list of NSDL impaneled Banks.
- The information or details filled in by you in the online form of the NPS account should match the details with your bank account. If the details do not match the bank has the right to deny your application. If it gets rejected, you have to contact the bank personally.
- After that fill in all the details carefully.
- Upload your picture and signature as asked in the application form.
- After your registration, you will have to make your first transaction with NetBanking.
Tax benefits under NPS
Any beneficiary of NPS can claim the tax benefits of NPS under Sec 80 CCD (1) within the overall package of 1.5 lac under the Sec 80 CCE. There is also an exclusive tax benefit to all the NPS beneficiaries under Sec 80CCD (1B). This is an additional tax benefit over and above the 1.5 lakh tax benefit available under section 80C of the income tax act 1961.
Tax benefits for corporate
- Corporate subscriber
There are additional tax benefits available for the people who work in the corporate sector. The tax benefit is under Sec 80CCD (2) of the income tax act.
The contribution of an employee is towards up to 10% of the salary. The contribution can be deducted as ” Business expense”.
NPS withdrawal rules
There are various NPS withdrawal rules set up by the government of India according to various government sectors.
- An NPS beneficiary has been allowed to withdraw only 3 times during the subscription tenure.
- An NPS beneficiary only has the right to withdraw 25% of his or her contribution towards the Scheme.
- There should be a minimum gap of 5 years in between 2 withdrawals which should be maintained by a subscriber.
The gap can be reduced during a medical emergency.
- The subscriber must be a member of this NPS Scheme for at least 3 years to fall in the eligibility criteria of withdrawing rules.
- In some exceptional cases like education or marriage expenses, partial withdrawal is allowed.
NPS vs PPF
Oftentimes people get confused between NPS and PPF as they both look similar but there are different from each other.
NPS is a national pension system that is Market linked whereas PPF is a public provident fund that is government-backed savings.
Although both the scheme is started by the government of India, both of them are apart from each other in terms of returns, maturity, Interest rates, etc.
The PPF is not a pension scheme that is only utilized after retirement. PPF can be used in any interval of time and used for several purposes. The NPS on the other hand is a pension scheme that can only be used after retirement.
NPS matures after 60 years of age whereas PPF gets mature upon retirement.
The Interest rate of NPS is between 12 to 14% per year. On the other hand, the Interest rate of PPF is 7.1% in Q2 of the financial Year 2020-21.
The minimum investment at NPS tier-1 account is is INR 500 whereas it is INR 250 for tier-2 NPS account. In PPF the minimum investment is Rs.100 and Rs 500 in a financial year.
The tax-free investment at NPS is up to Rs. 1.5 lakh. In PPF this is up to Rs.1.5 lakh.
Which is better NPS or PPF?
PPF has fixed high returns. It fluctuates every year. It has fluctuated around 8% per annum. On the other hand, the return rate on NPS depends upon the performance of NPS funds.
Both NPS and PPF have their benefits and it depends from person to person. So if you like fixed returns NPS is a good option for you, otherwise, you can choose NPS.
NPS subscriber registration form
You can download the NPS subscriber registration form via this link.
FAQs on NPS
Can anyone join NPS?
Yes, anyone who is an Indian citizen and aged between 18 and 60 can join the national pension scheme that is NPS. The only condition is that the person has to comply with the KYC registration.
Can NRI citizens join NPS?
Yes, an NRI (non-Indian resident) can also join NPS. The person has to follow some norms and fill the application form of NPS. Although his or her NPS account could be closed if there’s a change in the citizenship of the person.
What are the documents needed to open an NPS account?
You have to fill out the registration form of NPS. After that, you have to submit it to the NPS authority with the proof of Identification, address, Date of birth to PPO.
What is the PRAN number?
PRAN is a permanent retirement account number. After registering yourself, you will be provided a 12 digit unique number which is known as PRAN.
Can I have more than one account of NPS?
NPS is portable across all locations and sectors. So there’s no need to open multiple accounts of NPS. Also, you’re not allowed to do so.
What’s the minimum contribution in NPS?
Minimum Rs.500 in tier 1 account in a financial year.
The deduction you can claim through NPS is up to Rs. 1.5 lakh. This deduction is done for the contribution of the employer as well as for the employee. It is under Sec 80CCD(1) which covers self contribution, which is part of section 80C. The maximum you can claim is 10% of your Basic salary under section 80CCD of income tax. The limit is 20% of the gross salary for the self-employed taxpayer.
In the end, we can say that NPS scheme is very beneficial for an employee. This scheme will secure your life after your employees and make you self-reliant.