National Pension Scheme 2024 (NPS) – Govt Approved Pension Scheme

The National Pension Scheme (NPS) is a long-term retirement savings scheme initiated by the Government of India. It is designed to provide financial security to individuals during their post-retirement years. NPS offers a flexible and systematic way to accumulate a retirement corpus, allowing contributors to make regular contributions towards their pension fund.

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What is the National Pension Scheme?

The NPS Scheme is a voluntary, long-term retirement savings scheme designed to enable systematic savings for individuals, particularly after retirement. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) in India.

Under the NPS, individuals can contribute regularly towards their pension account during their working years. Upon retirement or reaching a specified age, they can withdraw a portion of the corpus as a lump sum. At the same time, the remaining amount is utilised to provide a regular pension or annuity.

What are the Features of the National Pension Scheme?

The NPS, a government-sponsored pension scheme, offers the following key features:

  • Flexibility: Subscribers can choose their own investment options and pension funds, and they can change their choices at any time.

  • Portability: Subscribers can carry their NPS scheme account with them even if they change jobs or cities.

  • Low cost: The NPS is one of the most cost-effective pension schemes in India.

  • Tax benefits: Contributions to the NPS scheme are eligible for tax deductions under Section 80C and Section 80CCD(1B) of the Income Tax Act, 1961.

  • Minimum contribution: The minimum annual contribution to the NPS scheme is ₹1,000.

  • Tier I and Tier II accounts: Subscribers can open two types of NPS accounts: Tier I and Tier II. Tier I accounts are locked in until retirement, while Tier II accounts offer more flexibility.

  • Annuity options: At retirement, subscribers can withdraw up to 60% of their corpus as a lump sum and use the remaining 40% to purchase an annuity plan. Annuity plans provide subscribers with a regular pension income.

What are the Benefits of NPS?

The following benefits of the National Pension Scheme:

What are the Benefits of NPS?What are the Benefits of NPS?

What are the Tax Benefits under the National Pension Scheme?

  1. Employee Tax Benefits for Self-Contribution:

    • Deduction of up to 10% of pay (Basic + DA) under Section 80CCD(1), subject to a maximum of ₹1.5 lakh under Section 80CCE..

    • Additional deduction of ₹50,000 under Section 80CCD(1B) within the overall limit of ₹1.5 lakh under Section 80CCE.

  2. Employer Contribution Tax Benefits:

    • Employer's NPS scheme contribution is eligible for deduction up to 10% of salary (Basic + DA) or 14% if by Central Government under Section 80CCD(2).

    • Beyond ₹1.5 lakh limit under Section 80CCE.

  3. Tax Benefits for Self-Employed Individuals:

    • Self-employed can avail a deduction of up to 20% of gross income under Section 80CCD(1).

    • Additional ₹50,000 deduction under Section 80CCD(1B) within the ₹1.5 lakh overall limit under Section 80CCE.

  4. Tax-Exempt Partial Withdrawals:

    Up to 25% of self-contribution is exempt from tax under section 10(12B), following PFRDA criteria.

  5. Tax Exemption on Annuity Purchase:

    • Tax exemption on annuity purchase or superannuation at 60 years under Section 80CCD(5).

    • Subsequent annuity income taxed under Section 80CCD(3).

  6. Tax Advantages on Lump Sum Withdrawal:

    Section 10 grants tax exemption on 60% lump sum withdrawal at 60 years or superannuation.

  7. Corporate/Employer Tax Breaks:

    Employer's NPS contribution deductible, up to 10% of employee's salary (Basic + DA) as 'Business Cost' under Section 36(1)(iv)(a).

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What is the Eligibility Criteria for the NPS Scheme?

  • Any Indian citizen can open the NPS account.

  • You must be between 18 and 60 years old at the time of submitting your application.

  • The applicant should be KYC-compliant.

  • Must have legal competence under the Indian Contract Act to execute a contract.

  • Overseas citizens (OCI), Persons of Indian Origin (PIOs), and Hindu Undivided Families (HUFs) are not eligible for NPS scheme subscriptions.

  • NPS is strictly an individual pension account; opening on behalf of a third person is not allowed.

What are the Different Types of NPS Accounts?

There are two types of NPS accounts:

  • Tier I NPS account: This is a mandatory retirement account. You can withdraw money from your Tier I NPS account only after you reach the age of 60. However, you can make partial withdrawals after the age of 50.

  • Tier II NPS account: This is a voluntary savings account. You can withdraw money from your Tier II NPS scheme account at any time.

What is the Difference Between NPS Tier-I And Tier-II Accounts?

Conditions NPS Tier I NPS Tier II
Eligibility Indian citizens between 18 & 65 years of age Members of Tier I only
Lock-in Till the age of 60 years NIL
Minimum number of contributions in the year 1 NIL, you can choose not to make any contribution in a year
Minimum contribution for account opening ₹500 ₹1,000
The minimum amount for subsequent contribution ₹500 ₹250
Tax benefits on the contribution Up to Rs 2 lakh p.a.(Under Section 80C and 80CCD) No tax benefit

What is the NPS Interest Rate?

The interest rate of the NPS is dependent on asset performance, making it challenging to predict the retirement return. NPS scheme operates as a market-linked product, allowing investment in diverse assets, including equity, government debt, corporate debt, and alternative assets. Once you finalise the asset mix and choose a fund manager, your funds are allocated to specific schemes within these four asset classes. The NPS scheme provides the flexibility of Tier I and Tier II accounts, with the current interest rates as of December 31, 2022, outlined below.

NPS Tier 1 Returns:

Asset Classes 1-year returns(%) 5-year returns (%) 10-year returns(%)
Equity (Class E) 15.33-18.81% 13.11-15.72% 10.45-10.86%
Corporate Bonds (Class C) 12.46-14.47% 9.27-10.15% 10.05%-10.64%
Government Bonds (Class G) 12.95-14.26% 10.29-10.88% 9.57-10.05%
Alternate Assets (Class A) 3.98-16.73% NA NA

NPS Tier 2 Returns:

Asset Classes 1-year returns(%) 5-year returns (%) 10-year returns(%)
Equity 15.19-17.92% 13.05-15.83% 10.35-10.58%
Corporate Bonds 12.71-16.36% 9.55-10.17% 9.86-10.60%
Government Bonds 12.61-13.42% 10.40-12% 9.59-10.07%

How to Open an NPS Account?

The Pension Fund Regulatory and Development Authority of India offers both an online and offline process to open an NPS account. Let's take a look at how to open an NPS account.

  1. Online Process

    Opening an NPS scheme account is now hassle-free. Visit enps.nsdl.com and choose subscriber type, residential status, and account type. Provide PAN details, select a PoP or bank, register with Aadhaar, and verify with OTP. Complete the application with personal, bank, and nomination details. Receive a PRAN upon successful submission. The final steps include e-signature, OTP verification, and payment via net banking, resulting in the generation of the permanent retirement account number.

  2. Offline Process

    To manually open an NPS scheme account offline, follow these steps:

    • Find the nearest Point of Presence (PoP).

    • Collect the subscriber form and complete KYC papers from the PoP.

    • Submit the filled form and KYC documents.

    • Make the initial investment.

    • PoP will send a Permanent Retirement Account Number (PRAN) in a welcome kit.

    • PRAN and password in the kit will be used to operate the account.

    • The registration fee is ₹125.

What is the Withdrawal Process Under the National Pension Scheme?

  1. Withdrawal at 60 Years:

    • At the age of 60, subscribers can withdraw 60% of the NPS scheme corpus.

    • The remaining 40% can be used for annuity purchase.

    • Subscribers can opt for a full lump sum withdrawal if their pension savings are ₹5 lakh or less.

  2. Pre-60 Years Withdrawal:

    • Before reaching the age of superannuation or turning 60, at least 80% of the subscriber's accrued pension corpus must be utilized to purchase an Annuity for a regular monthly income.

    • If the total corpus is ₹2.5 lakh or less, the subscriber can choose a 100% lump sum withdrawal.

  3. Death of Subscriber:

    • Entire corpus transferred to the beneficiary/legal heirs.

    • Required documents: beneficiary's ID, death certificate, etc.

What are the Equity Allocation Rules?

The NPS scheme allocates funds to various schemes, with Scheme E focusing on equity investments. Up to 50% of your investment can be allocated to equities. 

Two investment options are available: auto choice and active choice. 

Auto choice determines your risk profile based on age, with older individuals having more stable and less risky investments. Active choice allows you to select the scheme and allocate your investments personally.

Comparing NPS with Other Tax-Saving Investment Options

Let’s look at the comparison between the NPS scheme and other tax-saving instruments.

Investment Interest Lock-in Period Risk Profile
NPS 9%-12% Till retirement Market-related risk
ELSS 12%-15% 3 years Market-related risk
PPF 7.1% (Guaranteed) 15 years Risk-free
FD 7%-9%(Guaranteed) 5 years Risk-free

The taxability on NPS scheme withdrawals is subject to change.

What are the Types of Withdrawal Forms Available?

The following is the list of different forms available for different categories of withdrawal requests.

  1. NPS Scheme Withdrawal Forms on Superannuation

    Forms Applicable For
    Form 101 GS For government retirees' withdrawals.
    Form 301 For corporate and public withdrawals post-superannuation.
    Form 501 Swavalamban sector withdrawals on superannuation.
  2. NPS Scheme Withdrawal Forms Before Superannuation

    Forms Applicable For
    Form 102 GP Used by government employees who want to make a withdrawal before retirement.
    Form 302 Used by corporate employees and other citizens who want to make a withdrawal before superannuation.
    Form 502 Subscribers who are part of the Swavalamban sector.
  3. NPS Scheme Withdrawal Form For Claimants on Demise of the Subscriber

    Forms Applicable For
    Form 103 GD For NPS subscriber government employees' beneficiary/heir to claim accumulated amount.
    Form 303 For NPS subscriber corporate employees and citizens' beneficiary/heir to claim accumulated amount.
    Form 503 For Swavalamban sector subscriber's beneficiary/heir to claim accumulated amount.

Note: The nominee can fill the form to claim the accumulated amount in the account of the subscriber.

How to Login to Your National Pension Scheme Account for the First Time?

  • Obtain a 12-digit Permanent Retirement Account Number (PRAN) by submitting required documentation on the NSDL website or at Point of Presence (POP) service providers.

  • Visit the official NSDL CRA portal.

  • Enter PRAN and date of Birth, set a new password, confirm the password, and fill in the captcha. Click "Submit."

  • A unique Internet Personal Identification Number (IPIN) will be generated.

  • Log in to the NSDL eNPS page and choose 'Login with PRAN/IPIN.'

  • Use PRAN and IPIN on the next page to sign in to your NPS scheme account.

Conclusion

The National Pension Scheme (NPS) of 2023 stands as a significant and forward-looking initiative in providing financial security for individuals during their retirement years. It remains an important financial product fostering a secure and stable financial future for participants, contributing to the broader landscape of retirement planning. 

Frequently Asked Questions

  • Who Should Invest in an NPS?

    The National Pension Scheme (NPS) is open to individuals aged 18 to 60 and is ideal for those who lack the expertise or time for active investment management. It's a government-backed scheme, making it a secure choice for those planning an early retirement or seeking tax benefits via 80C deductions, especially salaried individuals.
  • What is the limit for NPS in 2023?

    The maximum tax saving limit is ₹1.5 lakh, and deposits above that will not be eligible for a tax deduction. However,  there are no restrictions on the upper limit for deposits into the Tier-I NPS account. It's important to note that this deduction falls under the overall tax limit defined by section 80C of the Income Tax Act.
  • What is the user ID for NPS?

    Your user ID for logging into the eNPS-NSDL website is your Permanent Retirement Account Number (PRAN), which is provided upon registration for the NPS account.
  • Is NPS good in 2023?

    Opting for the NPS is a safe decision due to its oversight by the Pension Fund Regulatory and Development Authority (PFRDA), which safeguards the welfare of subscribers. Additionally, the NPS provides a variety of investment choices, minimizing the potential for monetary setbacks.
  • Can I have two NPS accounts?

    No, you cannot open more than one NPS accounts. Moreover, there is no need to open another NPS account because NPS can be ported across locations and sectors.
  • How can a subscriber contribute to NPS?

    The subscribers can make regular contributions towards the NPS account during their working life and can avail the benefit of a regular pension after retirement. For the Tier 1 account, the subscribers are required to make a yearly contribution of Rs.6000 and Rs.5,00 as a one-time contribution. Similarly, for the Tier II account, the subscribers are required to make a yearly contribution of Rs.2,000 and Rs. 250 one-time contribution.
  • Can a Subscriber make contributions in his / her NPS account before receipt of the PRAN Card?

    Yes, to contribute to the NPS account, the subscriber-only need to have Permanent Retirement Account Number (PRAN). Once the subscriber is allotted the PRAN number, he/she can make the contribution to the account irrespective of whether the PRAN card is received or not.
  • Who is eligible for National Pension Scheme?

    Any Indian citizen who falls in the age group of 18 years and 60 years is eligible to take the National Pension Scheme as part of his/her retirement planning. However, the only condition that he/she needs to comply with is to know his/her to KYC norms.
  • What is the lock-in period for the National Pension Scheme (NPS)?

    Up to 60 years of the insured. However, an insured can also opt for a premature exit from this scheme after completing at least 10 years with it, but in this case, 80% of the corpus is annuitized. The insured can withdraw only the remaining 20% as a lump sum. Here, both lump sum and annuity are taxable. In addition to this, an insured can also make a withdrawal of up to 25% of the corpus on some special grounds and these withdrawals will be free of tax.
  • How can I join the National Pension Scheme?

    There are four steps to join NPS, these steps are:
    • The prerequisite to join NPS is Permanent Retirement Account Number (PRAN). One can get the forms for PRAN from any of the presence service providers (POP-SP) under the National Pension Scheme.
    • Then the details of the applicant, preferred National Pension Scheme details, and details of the bank have to be filled in the application form. ID and address proof, photograph for the KYC should be attached in the application form.
    • An applicant should submit this form with all the required documents at the office of the POPSP. The PRAN is generated and issued to the address of the applicant soon after verification and processing of this form.
    • When an applicant is submitting the form, he/she has to contribute at least Rs.500 to the POP-SP. For the same, the applicant has to fill a contribution slip (NCIS) with the particulars of the payment instrument with the payment.
  • Can I transfer my NPS account?

    Since you cannot have two NPS accounts, so if you change job or switch employer, you have to transfer your NPS account from your old employer to new.
  • What are the tax benefits of the national pension scheme?

    Your contribution towards National Pension Scheme makes you eligible to get tax benefits under section 80CCD (1) of the Income Tax Act. The ceiling on the tax deduction in section 80C and 80CCE is Rs.1.5 Lakh. The tax exemption for the contribution of the employer comes under section 80CCD (2). In addition to this, you can claim an additional tax deduction of maximum Rs.50, 000 in section 80CCD (1B) that is added over the permissible limit of Rs.1.5 Lakh. If you are self-employed, then also you can contribute 10% of your total gross earnings under section 80CCD (1) in the National Pension Scheme.
  • How can I pay NPS online?

    Follow the below steps to pay NPS online:
    • Enter the PRAN number.
    • Select the type of account.
    • Select the category of the account.
    • Enter the payment amount.
    • Click ‘Submit’.
    • Check the online reference number or PRAN, email id, mobile number, and email id.
    • If all the information is correct, click ‘Pay Now’.
  • What is NPS scheme and benefits?

    NPS is a defined contribution retirement scheme which is entirely voluntary. The scheme is specially designed keeping in mind the individual's financial future and helps inculcate a savings habit amongst citizens to save for retirement.
  • Which scheme of NPS is the best?

    Following are the best-performing NPS schemes under different categories:

    Best Performing Tier-I Returns under Scheme E – 2023

    Pension Fund Managers 1-year return 3-year returns 5-year returns
    HDFC Pension Fund 25.92% 17.97% 17.14%
    ICICI Prudential Pension Fund 26.34% 17.49% 16.11%
    Kotak Mahindra Pension Fund 27.25% 17.85% 16.52%
    LIC Pension Fund 27.78% 15.96% 14.79%
    SBI Pension Fund 24.15% 15.98% 15.39%
    UTI Retirement Solutions 25.54% 16.15% 15.88%

    Best Performing Tier-II Returns under Scheme E – 2023

    Pension Fund Managers 1-year return 3-year returns 5-year returns
    HDFC Pension Fund 25.76% 17.90% 17.09%
    ICICI Pension Fund 26.29% 17.58% 16.21%
    Kotak Mahindra Pension Fund 27.15% 17.59% 16.38%
    LIC Pension Fund 27.78% 15.84% 14.52%
    SBI Pension Fund 24.08% 16.06% 15.47%
    UTI Retirement Solutions 26.26% 16.50% 16.20%
  • Is NPS a good scheme?

    For low-risk appetite individuals who want a decent regular pension at the time of retirement, National Pension Scheme is the safest and best scheme to opt for.
  • What is NPS interest rate?

    As the National Pension Scheme's interest rate is market-linked, it keeps fluctuating. The current NPS interest rate is 9% - 12% per annum.
  • Is NPS tax-free on maturity?

    NPS rate of return is usually higher compared to other investment instruments like Fixed Deposits (FDs) and Public Provident Funds (PPFs). Since NPS falls under the EEE investment category, the investments made along with maturity benefits under the NPS scheme are non-taxable.

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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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