NPS Minimum Contribution for Retirement Planning

The National Pension System (NPS) offers an attractive way to build a secure retirement corpus with affordable contributions. For the NPS Tier 1 account, contribute a minimum of ₹500 each time and ₹1,000 annually. Tier 2 has an initial contribution of  ₹1,000 with no minimum per contribution.

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What are NPS Contributions?

The National Pension Scheme (NPS) contributions refer to the funds individuals invest in their NPS accounts to build a retirement corpus. The NPS is a voluntary, long-term retirement savings scheme designed by the Government of India to provide financial security during old age. Contributors, often employees from the public and private sectors, make regular contributions to their NPS accounts throughout their working years. These contributions are invested in a mix of equity, fixed deposits, liquid funds, and government funds, aiming to generate optimal returns. 

The NPS offers two types of accounts: Tier I, which is a mandatory, non-withdrawable account meant for savings, and Tier II, which is a voluntary, withdrawable account that provides flexibility in terms of deposits and withdrawals. Upon reaching retirement age, you will be given the choice to take out a lump sum of up to 60% of your accumulated funds. The remaining portion can be utilized to acquire annuities, which, in turn, will provide you with a regular retirement pension. Minimum investment in NPS not only helps individuals accumulate wealth over time but also offers tax benefits under Section 80C and 80CCD of the Income Tax Act, making it an attractive retirement planning option for many.

You can use the NPS Calculator online to check your potential returns on your investments. 

What are NPS Tier 1 & Tier 2 Contributions?

The National Pension Scheme comprises two tiers—Tier 1 and Tier 2. Tier 1, a primary retirement account, mandates long-term savings with withdrawal restrictions, aiming to build a significant corpus offering tax benefits. In contrast, Tier 2 is a voluntary savings account with greater withdrawal flexibility, allowing contributors to meet immediate financial needs.

  1. NPS Minimum Contribution to Tier 1 Account:

    For the NPS Tier 1 account, a minimum investment of ₹500 is required at the time of opening. The minimum NPS contribution to keep the account active is an annual contribution of at least ₹1,000 is necessary. Contributions are locked until age 60, with the added benefit of tax deductions up to ₹2,00,000 annually.

  2. Minimum NPS Tier 2 Contribution:

    To open an NPS Tier 2 account, it's mandatory to have a Tier 1 account. The NPS Minimum Contribution for Tier 2 is ₹1,000, and you must make at least one annual contribution to keep the account active. Unlike Tier 1, Tier 2 has no lock-in period and operates like a standard savings account. However, it doesn't offer tax benefits.

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How to Make NPS Contributions?

NPS Offline Contributions

  1. Through Nearest PoP-SP

    You can make NPS contributions in Tier 1 and Tier 2 accounts offline by visiting your nearest PoP-SP. These Points of Presence serve as a link between NPS subscribers and the system. Submit an NPS Contribution Instruction Slip along with necessary documents and the contribution amount in cash, cheque, or DD. PoPs facilitate physical NPS contributions, ensuring a straightforward process for subscribers.

  2. Through the Nodal Office

    NPS contributions in Tier 1 and Tier 2 accounts can be made through the nearest Nodal Office. As a subscriber, submit required forms and documents to contribute to Tier 1 or Tier 2 accounts. The Nodal Office validates details and uploads contributions to the NSDL CRA portal.

NPS Contribution Online

  1. Through Mobile App

    NPS contributions in Tier 1 and Tier 2 accounts can be made online via mobile apps like NSDL e-Gov and KFintech CRA. Download the app, log in with PRAN details, and follow instructions for seamless contributions. Available for both Android and iOS users.

  2. Through CRA Portals

    Minimum NPS contributions are facilitated through Central Record Keeping Agencies (CRAs), appointed by the PFRDA online. Utilize CRA portals to contribute to both Tier I and Tier II accounts. Choose a CRA, create an account, receive your PRAN details, and start investing in NPS with ease.

  3. Through eNPS Portal

    You can make your minimum investment in NPS online through the eNPS portal by visiting the ePNS portal. If NSDL is your CRA, log in using your PRAN and password. Provide additional details such as date of birth and captcha, then choose the account type, contribution amount, and make declarations before payment. Your contribution details will be reflected in your NPS account.

What is the Minimum Contribution to NPS Per Year?

Category Tier 1 Tier 2
NPS Minimum Initial Contribution ₹500 ₹1,000
NPS Minimum Per Contribution ₹500 ₹250
NPS Minimum Per Financial Year ₹1,000 None
Maximum Contribution Limit No fixed limit No fixed limit

What is the Employer Contribution to NPS?

Under NPS rules, government employees receive automatic employer contributions, while private companies have the option. Companies offering NPS contributions can claim tax benefits under Section 36 (i) (IV) of the Income Tax Act, 1961, reducing their income tax burden.

What are the NPS Tax Benefits for Employees?

Employees can contribute to their NPS accounts, securing retirement income with tax benefits. Salaried and self-employed individuals enjoy deductions of up to ₹2,00,000 per annum for NPS Tier I contributions, making it the best investment option for financial planning.

Section of Income Tax for NPS Deduction Description
80CCD (1) Tax deductions up to 10% of salary (basic + dearness allowance), up to ₹1.5 lakhs annually.
80CCD (2) Employer NPS contributions, up to 10% (14% for government employees) of salary (basic + dearness allowance), qualify for deductions under this section.
80CCD (1B)
Self-contribution of up to ₹50,000 is eligible for NPS tax deduction.

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) to 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. NRIs enjoy tax benefits on maturity, including a tax-free corpus, tax-free premature withdrawal (if the corpus is < ₹1,00,000), and tax-free corpus transfer to the nominee in case of premature death. However, Persons of Indian Origin (PIOs), Overseas Citizens of India (OCIs), and Overseas Corporate Bodies (OCBs) are not eligible to contribute to NPS.

What are the Charges Associated with NPS Contribution?

  1. POP

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

    Intermediary Charge Type   Service Charges (excluding taxes)
    POP Private Govt.
    Initial registration Min ₹200 and Max ₹400 NA
    All subsequent transactions 0.25% of the contribution, subject to a minimum of ₹20 and a maximum of ₹25,000;  For non-financial ₹30 NA
    Persistency 6 months Rs 1000 contribution Contribution between ₹1,000 to ₹2,999:  Rs 50 per annum
    Contribution between ₹3,000 to ₹6,000: ₹75 per annum
    Contribution above Rs 6,000 ₹100 per annum
    NA
    Contribution through eNPS 0.20% of the contribution, subject to a minimum of ₹15 and a maximum of ₹10,000 NA
    Processing of Exit / Withdrawal 0.125% of the corpus, subject to a minimum of ₹125 and a maximum of ₹500 NA
  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 subscribers.

    Intermediary Charge Type Service Charges (excluding taxes)
    Private / Govt. Lite/APY
    CRA PRAN Opening Charges With a Physical PRAN card ePRAN card with the physical kit ePRAN card with email kit ₹15
    NCRA: ₹40 CCRA: ₹40  KCRA:₹39.36 NCRA: ₹35 CCRA: NA KCRA: ₹39.36 NCRA: ₹18 CCRA: ₹18  KCRA: ₹4
    Annual PRA Maintenance cost per account NCRA: ₹69 CCRA: ₹65 KCRA: ₹57.63 NCRA: ₹20 CCRA: ₹16.25 KCRA: ₹14.40
    Charge per transaction NCRA: ₹3.75 CCRA: ₹3.50  KCRA: ₹3.36 Free
      Bank account verification charges KCRA:  ₹1.90 CCRA: ₹2.00 NCRA: ₹2.240
  3. Pension Fund Charges

    Intermediary Charge Type Service Charges (excluding taxes)
    PF charges Investment Management Fees AUM slabs IMF FEE
    Upto ₹10,000 Cr. 0.09%
    ₹10,001 – ₹50,000 Cr. 0.06%
    ₹50,001 – ₹1,50,000 Cr. 0.05%
    Above ₹1,50,000 Cr. 0.03%
  4. NPS Trust Charges

    Intermediary Charge Type Service Charges (excluding taxes)
    NPS Trust Reimbursement of Expenses 0.005% p.a

    In addition to the above-mentioned fees, there are other charges to be aware of:

    • Custodian-imposed asset servicing fees, set at 0.0032% per annum for both electronic and physical transactions.

    • Applicable payment gateway service charges.

    • If your association with a Point of Presence (POP) lasts beyond six months in a financial year, you are obligated to pay a persistence fee.

    • Government employees have their CRA charges covered by their respective government.

    • Any pertinent GST or other government taxes are treated as supplementary charges.

How to Check Your NPS Contribution Statement?

Checking your NPS contribution statement is important to track your progress towards your retirement goals. 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. Online through eNPS:

    • Go to the eNPS website: https://enps.nsdl.com/eNPS/NationalPensionSystem.html

    • Log in using your PRAN (Permanent Retirement Account Number) and IPIN (Investor PIN).

    • Click on the "Account Statements" tab.

    • Select the type of statement you want to view (e.g., Annual Consolidated Statement, CAS, Individual Transaction Statement).

    • Choose the period for which you want to see the statement.

    • Click on "View Statement" to download or print the statement.

  2. NPS Mobile App:

    • Download the NPS mobile app on your Android or iOS device.

    • Login using your PRAN and mobile number or biometric authentication.

    • Tap on the "Account Statements" section.

    • Select the type of statement and period you want to view.

    • Download or view the statement online.

FAQ's

  • Is it compulsory to invest in NPS every year?

    No, it is not compulsory to contribute to NPS every year. However, to maintain your account active in Tier 1, you need to make at least 1 contribution per financial year. Tier 2 has no minimum contribution requirement.
  • What happens if I stop contributing to NPS?

    If you stop contributing to NPS, your account will remain active as long as it has a minimum balance of Rs. 500. However, you will not accumulate any further corpus and may miss out on potential returns.
  • Can we invest less than Rs. 50,000 in NPS?

    Yes, you can invest less than Rs. 50,000 in NPS. The minimum annual contribution for Tier 1 is Rs. 1,000, and there is no minimum requirement for Tier 2.
  • How much can I invest in NPS per year?

    There is no upper limit on the amount you can invest in NPS per year. You can contribute as much as you wish, both to Tier 1 and Tier 2 accounts, depending on your financial goals and risk tolerance.
  • What is the minimum annual contribution to keep my NPS account active?

    The minimum annual contribution required to keep your NPS account active is Rs. 1,000. This applies to Tier 1 accounts. Tier 2 accounts do not have any minimum contribution requirement.

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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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