What is NPS scheme?
NPS called as National Pension scheme.
Name itself explains the meaning of the scheme. It is a government sponsored Pension scheme which is launched in year 2004 for government employees. But looking for the scheme benefit and giving benefit to entire country (except for armed forces), government has opened it for all in year 2009. This scheme gives benefits and provisioned to contribute for a life term of working life.
The government of India has undertaken an initiative that will provide retirement benefits to all citizens of India opting National Pension Scheme. NPS is a defined, voluntary contribution scheme that is market-linked and managed by professional fund managers.
NSDL is appointed as CRA (Central record keeping agency) for NPS. CRA is the first of its kind venture in India which will carry out the functions of Record Keeping, Administration and Customer Service for all subscribers under NPS. CRA shall issue a Permanent Retirement Account Number (PRAN) to each customer/ subscriber and maintain data base of each Permanent Retirement account along with recording transactions relating to each PRAN.
Benefits of NPS scheme
There are multiple benefits of this scheme.
It is voluntary, simple, flexible, portable, regulated, partial withdrawal benefit, Income tax benefit, eventual or accumulated benefit
Lets talk about above terms mentioned in Benefits of NPS scheme.
- Voluntary- Someone can contribute based on his/her wish any amount at any point of time in a year.
- Simple- A simple and easy way to open an account using any POP-SP (Point of presence- Service provider) banks. More details on POP-SP is given below.
- Flexible- The deferred withdrawal facility will allow customer to remain invested in the NPS and defer the lump-sum withdrawal for ten more years. However, no new contributions can be made during the deferred investment period. A customer can choose their own investment options and pension fund and see their money grow.
- Portable- Customer can operate their account from anywhere, even if they change the city and/or employment.
- Regulated- NPS is regulated by PFRDA (The Pension Fund Regulatory and Development Authority), created by an Act of the Parliament of India.
- Partial withdrawal benefit- A customer is allowed to do partial withdrawal after joining the scheme and after 10 years. It does not exceeds 12% of the total contributions made by him/her and excluding contribution made by employer, if any, at any time before exit from National Pension System subject to the terms and conditions.
- Income tax benefit- This scheme is giving exclusive Tax Benefit u/s 80CCD (1B). An additional deduction for investment up to Rs. 50,000 (Tier- I account) is available. This deduction is over and above the deduction of Rs. 1.5 lakh available under section 80C of Income Tax Act. (80C is having other benefits by taking other insurance, like Term Insurance)
- Eventual or accumulated benefit- The greater the value of the contributions made, the greater the investments achieved. The longer the term over which the fund accumulates and the lower the charges deducted. The larger is the eventual benefit of the accumulated pension wealth likely to be. Wealth creation for your retirement over the long term.
- Provide income at old age
- Good market based return spending over a long term
- Extending old age security coverage to all citizens
What is POP-SP?
Point of presence- Service provide act as a collection points by extending their services to customers or NPS subscribers.
The number of pension fund managers (PFM) are:
- SBI Pension Funds
- LIC Pension Fund
- UTI Retirement Solutions
- HDFC Pension Fund
- ICICI Prudential Pension Fund
- Kotak Pension Fund
- Birla Sun Life Pension Management Ltd
- Reliance Pension Fund.
Types of NPS scheme account
There are 2 types of NPS scheme account:
- Tier I
- Tier II
Tier I NPS scheme-
- It is a mandatory retirement account.
- It is eligible for tax deduction on contributions up to Rs 1.5 lakh under Section 80 C and an additional Rs 50,000 under Section 80 CCD (1B) of the Income Tax Act, 1961.
- One can withdraw up to 25 per cent from his/her own contribution from the Tier-I NPS account.
Tier II- NPS scheme
- It is a voluntary saving Account associated with your PRAN.
- It offers greater flexibility in terms of withdrawal.
- It has no tax benefits.
- No one can claim deductions and on exit the corpus is taxed.
- There is no lock-in with savings. You can withdraw from this account at any time.
NOTE: You can open TIER II only after opening TIER I account.
Which scheme is best in NPS scheme?
Best performing in Tier I Equity NPS Fund Manager (Scheme E) are:
- HDFC Pension Fund
- Kotak Pension Fund
- UTI Retirement Solutions
These are the 3 top pension fund managers based on last 5 years return in Tier- 1 Scheme E or equity plan of NPS.
few more top NPS Fund managers are:
- SBI Pension fund
- LIC Pension fund
How much can someone invest in NPS scheme?
You can get started with investments as low as Rs. 500. Always, Invest in a mix of equity, corporate bonds and government debt.
In NPS Tier 2, the minimum initial contribution is Rs 1,000. An individual can invest a maximum of Rs. 1.5 Lakhs in Tier 1 for tax deduction under Section 80CCD(1) which is part of 80C.
Who can join NPS scheme?
A citizen of India, whether resident or non-resident can join NPS, subject to the following conditions:
- The person must be in between 18 to 65 years old as on the date of submission of his/her application to the Point of Presence (POP) / Point of Presence–Service Provider-Authorized branches of POP for NPS (POP-SP).
- The customer should comply with the Know Your Customer (KYC) norms as detailed in the registration form.
- NRI can’t activate Tier II account.
Opening an account in NPS scheme
There are 2 ways of opening the NPS account:
- By visiting POP-SP
- Through e-NPS
Account opening using POP-SP
- As a Subscriber (age criteria 18 to 65 years), you can procure your PRAN application form from any of the POP-SP.
– Please make sure that application form must be filled with following details:
- mandatory details
- scheme preference details etc
- submit KYC documentation with respect to proof of identity and proof of address.
2. Please submit PRAN application along with the KYC documents to the nearest POP-SP office. PRAN card will be sent to your correspondence address by CRA.
3. You will get a receipt number while submitting PRAN application through which you can track the status of your application using the following link: https://cra-nsdl.com/CRA/pranCardStatusInput.do
4. Please ensure minimum of Rs. 500 contribution the first time at the time of applying for registration to any POP-SP. For this, you will have to submit NCIS (Instruction Slip) mentioning the details of the payment made towards your PRAN account.
Account opening through e-NPS
- The person must have a ‘Permanent Account Number’ (PAN)
- Bank / Demat /Folio account details with the empanelled Bank/Non-Bank for KYC verification for subscriber registration through eNPS
- Know your customer verification will be done by the Bank/Non-Bank POP selected by you during the registration process.
- Please make sure that “Name and Address” provided during registration must match with POP records during KYC verification else it will be rejected.
- As a usual practice, all the mandatory details must be filled online.
- Please make sure that you upload scanned copy of PAN card and Cancelled Cheque in format (.jpeg/.jpg/*.png) and with file size between 4 KB – 2 MB
- Please ensure upload of scanned photograph and signature in format ( .jpeg/.jpg/*.png) and with file size between 4 KB – 5 MB
- Payment must be routed thru payment gateway towards your NPS account from Internet Banking
- Contributions are credited in PRAN on T+2 basis (subject to receipt of clear funds from Payment Gateway Service Provider)
In addition, NRI customers should
- They must select Bank Account Status i.e., Non-Repatriable account or Repatriable account
- They must provide the NRE/NRO bank account details and upload passport scanned copy
- Preferred address for communication i.e., Overseas Address or Permanent Address
- After Permanent Retirement Account Number is allotted, subscriber can use the following option:
Option 1 – eSign
- Select ‘eSign’ option in the eSign / Print & Courier the page
- OTP for the purpose of authentication will be sent to your mobile number registered with the Aadhaar
- Registration form will be successfully eSigned after authentication of Aadhaar.
- Once a document is eSigned, you need not send the physical copy of form to CRA
- eSign service charges plus taxes applicable is Rs. 25.90 (including UIDAI charge of Rs. 20)
Option 2 – Print and Courier
- Select ‘Print & Courier‘ option in the eSign / Print & Courier page
- Take a printout of the form, paste your photograph & affix signature. Please ensure you sign on the block provided for signature
Please note: The photograph should not be stapled or clipped to the form
The form should be sent within 30 days from the date of allotment of PRAN to CRA at the following address or else the PRAN will be ‘frozen’ temporarily
Address for sending the authentication form
Central Recordkeeping Agency (eNPS)
NSDL e-Governance Infrastructure Limited,
1st Floor, Times Tower, Kamala Mills Compound, SenapatiBapat Marg
Lower Parel, Mumbai – 400 013
How to withdrawal from NPS scheme?
As per PFRDA (Exits & Withdrawals under NPS) Regulations 2015, in following conditions one can exit from NPS:
- 60 years and above, you can withdraw upto 60% as tax free and rest 40% of accumulated pension corpus to buy an annuity that would provide a regular monthly pension from one of the companies empanelled by the PFRDA.
- If the total accumulated pension corpus is less than or equal to Rs. 2 lakh, you can opt for 100% lump-sum withdrawal.
- Below 60 years, 80% of the accumulated pension corpus has to be utilized for buying an Annuity that would provide a regular monthly pension. The remaining funds can be withdrawn as lump sum. Please note: You can exit from NPS only after completion of 10 years.
- If the total corpus is less than or equal to Rs. 1 lakh, you can opt for 100% lump-sum withdrawal.
- Upon Death of Subscriber – The entire accumulated pension corpus (100%) would be paid to the nominee/ legal heir of the subscriber.
Partial withdrawal request can be initiated online by Subscriber. Alternatively, Subscriber can submit physical partial withdrawal form (601-PW) along with documents to POP, based on which POP can initiate online request. However, POP is required to ‘Authorize’ the Withdrawal request in CRA system.
Documents required for withdrawal from NPS scheme
Following documents are required to be submitted along with the duly filled Withdrawal form for Superannuation & Pre-mature Exit:
- Original PRAN card
- Advanced stamped receipt, to be duly filled and cross-signed on the Revenue stamp by the Subscriber.
- KYC documents (address and photo-id proof)
- ‘Cancelled Cheque’ (having Subscriber’s Name, Bank Account Number and IFS Code)
- “Request Cum Undertaking” form if eligible for complete Withdrawal.
After submitting required documents, POP will authorize the Withdrawal request.
Partial amount can be withdrawal from NPS scheme
Following are the conditions of partial withdrawal:
- You should be in NPS scheme for at least for 3 years
- Withdrawal amount must not exceed 25% of the contributions made
- Withdrawal can happen maximum of 3 times during the entire tenure.
- Withdrawal is allowed only against the specified reasons, for example;
- Higher education of children
- Marriage of children
- For the purchase/construction of residential house (in specified conditions)
- For treatment of Critical illnesses
Tax benefits under NPS scheme
- You can Invest upto Rs. 2 lakhs in NPS.
- NPS investments are eligible for deduction under Section 80C.
- Tax deduction of Rs. 50,000 available under section 80CCD (1B) over & above ₹ 1.5 Lakh available under Section 80C.
- As per current income tax laws, a maximum of 25 per cent of an individual’s own contribution to NPS Tier I account can be claimed as tax exempt when taken out as partial withdrawal.
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