NPS - National Pension Scheme Details

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 (NPS)?

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 New Pension Scheme, 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.

How Many People Have Started Investing In NPSHow Many People Have Started Investing In NPS

What are the benefits of National Pension Scheme

The following benefits of the NPS Scheme:

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

Tax Benefits Under the National Pension Scheme (NPS)

Below are the NPS scheme details about tax benefits:

  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 in the new pension scheme.

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

  2. Tax Benefits for Self-Employed Individuals under New Pension Scheme:

    • 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 is 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).

National Retirement/Pension Scheme Eligibility Criteria

The eligibility criteria for the new pension 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.

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How to Open an NPS Account?

You can open an NPS national pension scheme account through a variety of platforms, including:

  • Banks: Many major banks in India act as Points of Presence (PoPs) for NPS, allowing you to open an account online or by visiting a branch. Some examples include SBI, HDFC, ICICI, and Kotak Mahindra Bank.

  • Online Investment Platforms: Several online investment platforms offer NPS national pension scheme account opening services. Examples include Zerodha Coin and ET Money.

  • Points of Presence (PoPs) of NPS Entities: PoPs include various entities registered with the PFRDA to facilitate NPS accounts. This can include registrars like NSDL or insurance companies. You can find a complete list of PoPs on the NPS website.

  • Offline Method: Visit your nearest Point of Presence (PoP) branch, a bank or an authorized entity. Collect a physical NPS subscriber registration form, fill it out, submit it with KYC documents, and make the minimum initial contribution in cash or cheque.

How to Login to Your NPS Account for the First Time?

Below are the national pension scheme details on how to login to your NPS account

  • 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 national retirement scheme account.

How to Apply for National Pension Scheme (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

    Let's learn how to apply for the national retirement scheme online:

    • Visit the eNPS portal of one of the Central Recordkeeping Agencies (CRAs) like NSDL eNPS Click on "New Registration."

    • Enter your PAN number, mobile number, and email address (optional).

    • You will receive a One-Time Password (OTP) on your registered mobile number. Enter the OTP to verify your details.

    • Complete the online registration form by providing your personal details, nominee information, and investment preferences.

    • Upload scanned copies of your PAN Card and Aadhaar Card (if not Aadhaar-based registration).

    • Review your application and submit it online.

    • Upon successful registration, you will receive a Permanent Retirement Account Number (PRAN). You can use your PRAN to login to your NPS account and start making contributions.

  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.

What are the returns on NPS Scheme

The National Pension Scheme (NPS) offers potentially higher returns compared to fixed-income schemes due to its investment in equities. However, unlike fixed deposits or PPF, National Pension Scheme returns are not guaranteed. They depend on the performance of the underlying assets you choose to invest in.

Here’s how they work:

  • Market-linked: Pension Plan invests your contributions in a mix of asset classes, including equity, government bonds, and alternative investments. The returns you earn are based on how these assets perform in the market.

  • Choice of Pension Fund Managers: National Pension Fund Scheme allows you to choose a Pension Fund Manager (PFM) who invests your contributions as per your chosen asset allocation. Different PFMs may deliver varying returns based on their investment strategies.

  • NPS returns are not guaranteed but have historically offered good returns.

  • NPS is a long-term investment, and staying invested for a longer duration can help average out market volatility and potentially earn better returns.

How are NPS Returns Calculated?

You can calculate returns on your NPS account by using the NPS calculator. An NPS calculator is a handy online tool that helps individuals estimate their potential pension. Users input their relevant financial information into the calculator, and it generates an estimate of the pension they may receive during retirement through their National Pension Scheme account. These calculators are designed to assist people in planning and making informed decisions about their retirement savings and income.

How to Invest in National Pension Scheme

There are two main ways to invest in the NPS:

  1. Online Process

    • Choose a Point of Presence (PoP): These can be banks or other entities registered with the PFRDA to facilitate NPS accounts. You can find a list of PoPs on the NPS website.

    • Visit your chosen PoP's website or branch. They will guide you through the online registration process.

    • Complete the online registration form and KYC (Know Your Customer) verification. You will need documents like PAN card, ID proof, and address proof.

    • Choose your investment preferences: This includes selecting a Pension Fund Manager and your asset allocation (equity-debt mix).

    • Make the minimum initial contribution: The minimum one-time contribution required to open a Tier I account is Rs. 500. For a Tier II account, a subscriber needs to make a minimum contribution of Rs. 2,000 annually and Rs. 250 for one time.

  2. Offline Process

    • Visit your nearest PoP branch.

    • Collect and fill out a physical NPS subscriber registration form.

    • Submit the form along with your KYC documents.

    • Make the minimum initial contribution in cash or cheque.

Know about National Pension Scheme (NPS) Interest Rate

The NPS interest rate depends 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 under the new pension scheme. 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%

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

National Pension Scheme Customer Care Number

The NPS customer care number depends on whether you are a registered subscriber with a Permanent Retirement Account Number (PRAN) or not:

  • Toll-Free Number For Registered Subscriber (PRAN is Mandatory):
    • For NPS Subscriber – 1800 2100 080

    • For NPS Nodal Officers - 1800 2100 081

    • For APY Subscriber – 1800 889 1030

  • Telephone number: 022 40904242 (Ext. 7350)

Note: It's recommended to refer to the official NPS website (https://www.npscra.nsdl.co.in/contact-us.php) for the latest contact details.

What are the Different Types of NPS Accounts?

There are two types of National Pension Scheme 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 anytime.

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 is transferred to the beneficiary/legal heirs.

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

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 subscribers, government employees' beneficiaries/heirs are to claim the accumulated amount.
    Form 303 For NPS subscribers, corporate employees and citizens' beneficiaries/heirs are to claim the accumulated amount.
    Form 503 For Swavalamban sector subscriber's beneficiary/heir to claim accumulated amount.

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

Conclusion

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

FAQs

  • Is NPS better than PPF?

    It depends on your priorities. NPS offers potentially higher returns due to equity investment, but returns are not guaranteed, and withdrawal is restricted. PPF offers guaranteed returns but lower potential growth and greater flexibility.
  • Can I withdraw my NPS amount?

    Generally, you cannot withdraw your entire NPS corpus before reaching 60 years of age. There are some exceptions for special situations like terminal illness or disability.
  • What are the features of an NPS account?

    • Market-linked returns with potential for higher growth compared to PPF

    • Tax benefits under Section 80CCD(1) and 80C

    • Investment flexibility with choice of asset allocation

    • Lock-in period until maturity with limited withdrawal options

  • Can I switch between pension funds?

    Yes, NPS subscribers can switch between different pension funds. However, a fund must be maintained for a minimum of 1 year before switching to another fund.
  • What happens if I don't choose a fund at registration?

    If you don't specify a preference at registration, your investments will be placed in default funds managed by the Pension Fund Regulatory and Development Authority (PFRDA).

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^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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