NPS Minimum Contribution for Retirement Planning

What are NPS Contributions?

NPS contributions are the regular investments you make into your NPS accounts to create a retirement corpus. The National Pension Scheme (NPS) is a retirement plan introduced by the Government of India to ensure financial security after retirement. Employees from both the public and private sectors contribute regularly to the scheme throughout their working year.

These contributions are invested in a mix of assets, including equity, fixed deposits, government securities, and liquid funds, to generate market-linked returns. The funds accumulated in the NPS account grow over time, helping individuals build a solid financial foundation for their post-retirement life.

What are NPS Tier 1 & Tier 2 Contributions?

The National Pension Scheme (NPS) has two types of accounts:

• Tier 1
• Tier 2

Tier 1 is a mandatory retirement account designed for long-term savings, offering tax benefits but with restrictions on withdrawals. Its goal is to help build a strong retirement corpus. On the other hand, a Tier 2 account is a voluntary savings account that provides more flexibility, allowing contributors to withdraw funds as needed for immediate financial requirements. Let's understand the minimum contribution required to contribute to both Tier 1 and Tier 2 accounts:

1. NPS Minimum Contribution to Tier 1 Account:

   To open and keep your NPS Tier 1 account active, a minimum contribution of ₹500 is required per contribution, with an annual minimum of ₹1,000. Contributions can be made anytime during the financial year, and you can benefit from tax deductions under Section 80C. However, withdrawals from your Tier 1 account are restricted until you turn 60, with partial withdrawals allowed under specific circumstances.

2. Minimum NPS Tier 2 Contribution:

   To open an NPS Tier 2 account, it's mandatory to have an active Tier 1 account. The Tier 2 account offers flexible savings with no annual minimum contribution. You need to invest at least ₹250 per contribution. Withdrawals can be made anytime, as there's no lock-in period, but tax benefits are limited unless you're a government employee meeting specific conditions. You can use the NPS Calculator to evaluate potential returns and plan your investments more effectively.

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How to Make NPS Contributions

Contributions to your NPS account can be made both offline and online. Below are the different methods to contribute to your Tier 1 and Tier 2 accounts:

1. NPS Offline Contributions:

   • Through Nearest PoP-SP:
     Visit your nearest PoP-SP (Point of Presence- Service Provider). Simply fill out the NPS Contribution Instruction Form, submit the required documents, and pay using cash, cheque, or a demand draft. The PoP-SP will help you with the process and make sure your contribution is added to your account.
   • Through the Nodal Office:
     Just submit the necessary forms and documents at the nearest Nodal Office.. The Nodal Office will verify your details and upload the contribution to the NSDL CRA portal to complete the process.

2. NPS Contribution Online:

   • Through the Mobile App:
     You can easily contribute to your NPS Tier 1 and Tier 2 accounts using mobile apps like NSDL e-Gov and KFintech CRA. Just download the app, log in using your PRAN details, and follow the simple instructions to make your contribution. These apps are available for both Android and iOS users.
   • Through CRA Portals:
     You can make your NPS contributions online through the Central Record Keeping Agencies (CRAs) approved by the PFRDA. Once you create an account and receive your PRAN, you can start contributing to both Tier I and Tier II accounts through the CRA portal with ease.
   • Through the eNPS Portal:
     Another option for NPS contributions is via the eNPS portal. If NSDL is your CRA, simply log in with your PRAN and password. Enter your date of birth and captcha, select your account type, contribution amount, and make the required declarations before submitting your payment. Your contribution will be updated in your NPS account immediately.

What is the Minimum Contribution to NPS Per Year?

What is the Employer Contribution to NPS?

Under the National Pension Scheme (NPS), employers can contribute to an employee's NPS account. The employer's contribution is eligible for a tax deduction under Section 80CCD(2) of the Income Tax Act. Employers can claim a deduction of up to 10% of the employee's salary (Basic + DA). However, for central government employees, the employer's contribution can be up to 14% of the salary, regardless of the tax regime chosen.

What are the NPS Tax Benefits for Employees?

Employees can enjoy tax benefits by contributing to their NPS accounts, which helps secure retirement income. Both salaried and self-employed individuals can receive deductions on contributions, making it a great investment option for long-term financial planning.

Note: Employee Contributions to the NPS Tier II account are not eligible for tax benefits.

What is the Government Contribution to NPS?

For central government employees, excluding the armed forces, NPS is compulsory. The government contributes 14% of the employee's salary (basic + DA) to their NPS accounts. Employees are required to make a minimum investment in NPS of 10% of their salary (basic + DA) into their NPS accounts. State governments also commonly contribute to NPS for their employees.

What is the NPS Contribution for NRI?

Non-resident Indians (NRIs) aged 18 and above can contribute to NPS through their NRE/NRO bank accounts. The minimum contribution in NPS for NRIs is ₹500 to the Tier I account, with an annual requirement of ₹6,000. Registration is done online through the eNPS portal by providing a valid PAN card, passport number, and bank details.

NRIs can claim tax deductions under Section 80CCD(1), which is part of the ₹1.5 lakh limit under Section 80C, and an additional ₹50,000 under Section 80CCD(1B). At maturity, 60% of the corpus can be withdrawn tax-free, and the remaining 40% is used for a lifelong pension. Nominees receive the amount in case of death.

What are the Charges Associated with NPS Contribution?

Here are the key charges associated with NPS contributions, covering initial registration, transaction fees, and more:

1. PoP

   PoPs (Points of Presence), appointed by PFRDA, are NPS service providers who handle tasks like opening NPS accounts, managing contributions, and account changes. Their branches, called PoP Service Providers (PoP SP), extend these services nationwide.

   Charge Head	Private Subscribers	Government Subscribers	Mode of Deduction
   Initial Subscriber Registration & Contribution	Up to a maximum of ₹. 400	NA	Collected by POP
   Subsequent Financial Transactions	Up to 0.50% of contribution (max ₹ 25,000)	NA	Collected by POP
   Subsequent Non-Financial Transactions	Up to ₹. 30	NA	Collected by POP
   Persistency (contribution-based annual fee)	₹. 50 (₹1,000–₹2,999), ₹. 75 (₹3,000–₹6,000), ₹ 100 (Above ₹6,000)	NA	Through Unit Deduction
   Contribution via eNPS	Up to 0.20% of contribution (max ₹ 10,000)	NA	Upfront deduction from the amount
   Processing of Exit / Withdrawal	Up to 0.125% of corpus (max ₹ 500)	NA	Collected by POP

2. CRA

   The Central Recordkeeping Agency (CRA) is the NPS service provider appointed by the PFRDA. CRAs, including Computer Age Management Services Ltd (CCRA), KFin Technologies Limited (KCRA), and Protean eGov Technologies Ltd (formerly NSDL e-Governance Infrastructure Limited), maintain records and provide customer service to NPS subscribe₹

   Charge Head	Service Charges (Excl. Taxes)	Mode of Deduction	Remarks
   PRA Opening Charges (Physical PRAN Card)	₹ 40	Through Unit Deduction	Includes a welcome kit in physical form
   PRA Opening Charges (ePRAN Card)	₹ 35	Through Unit Deduction	Welcome kit sent via email
   PRA Opening Charges (Reissue of PRAN)	₹ 40	Through Unit Deduction	Reissue of physical PRAN card
   PRA Opening Charges (Reissue via email)	₹ 18	Through Unit Deduction	ePRAN reissue only
   Annual PRA Maintenance Cost per Account	₹ 69	Through Unit Deduction	Charged every year
   Per Transaction Charge	₹ 3.75	Through Unit Deduction	For each financial transaction

3. Pension Fund Charges

   Pension fund charges refer to the fees taken by fund managers for managing NPS contributions. These fees are based on the assets under management (AUM), typically decreasing as AUM increases. They are designed to cover the cost of investment management, ensuring funds are optimally invested.

   Slab of AUM Managed by Pension Fund	Maximum Investment Management Fee (IMF)	Mode of Deduction
   Up to ₹ 10,000 Crores	0.09%	Through AUM
   ₹ 10,001 – 50,000 Crores	0.06%	Through AUM
   ₹ 50,001 – 1,50,000 Crores	0.05%	Through AUM
   Above ₹ 1,50,000 Crores	0.03%	Through AUM
   UTI Retirement Solutions Ltd (up to ₹10,000 Cr slab)	0.07%	Through AUM

4. NPS Trust Charges

   The NPS Trust charges cover administrative and operational costs related to managing the pension system. These charges are generally minimal and are used to ensure the smooth functioning and security of the NPS framework.

   Charge Head	Service Charges (Excl. Taxes)	Mode of Deduction
   Reimbursement of Expenses	0.005% per annum	Through AUM

5. Custodian Charges

   Custodian Charges are small fees paid to the organization that safely keeps and manages your NPS investment assets. The custodian ensures all the records of your investments are accurate and helps in the smooth handling of your NPS funds. These charges are very minimal and are automatically deducted from your investment amount. You don't have to pay separately.

   Charge Head	Service Charges (Excl. Taxes)	Mode of Deduction
   Asset Servicing Charges	0.000000001770% per annum (Electronic + Physical segment)	Through AUM

How to Check Your NPS Contribution Statement?

Checking your NPS contribution statement is important to track your progress towards your retirement planning. By regularly checking your NPS contribution statement, you can ensure your contributions are accurately recorded and stay on track towards your retirement goals. Here are three ways to access your NPS contribution statement:

1. Through the CRA Website:

   • Go to the official CRA website: www.cra-nsdl.com
   • Log in using your PRAN (Permanent Retirement Account Number) as the user ID and your password (IPIN).
   • Once logged in, go to the 'Transaction Statement' section.
   • Click 'Holding Statement' to check your current balance.
   • To download your full statement or NPS receipt, select 'Transaction Statement' again and choose 'Download'.

2. Through the NPS Mobile App:

   • Download the NPS App from the Google Play Store or the Apple App Store.
   • Login using your 12-digit NPS user ID.
   • If you forgot your password, you can easily reset it.
   • After logging in, you can view and download your statement for both Tier 1 and Tier 2 accounts.

3. Through Missed Call Alerts:

   • You can register your mobile number for missed call alerts.
   • Once registered, you can give a missed call to receive balance updates directly on your phone.

   This makes it easy to track your NPS savings anytime, anywhere!

Wrapping Up

NPS offers a structured approach to retirement planning, with minimum contributions required for both Tier 1 and Tier 2 accounts. Understanding the associated charges, such as pension fund and NPS trust charges, can help you manage your investments efficiently. Regular contributions, along with strategic investments, ensure a secure retirement.