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What is NPS?
NPS is an easily accessible, low cost, tax-efficient, flexible and portable retirement savings account. Under the NPS, the individual contributes to his retirement account and also his employer can also co-contribute for the social security/welfare of the individual. NPS is designed on Defined contribution basis wherein the subscriber contributes to his account, there is no defined benefit that would be available at the time of exit from the system and the accumulated wealth depends on the contributions made and the income generated from investment of such wealth. 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 would be the eventual benefit of the accumulated pension wealth likely to be.
World's cheapest retirement plan
You pay less than 0.02% of your investment value as annual fees
Independence
The scheme enables the citizens to be independent even after getting retirement.
Safe Investment
A safe retirement fund. Introduced by the Government of India and regulated by Pension Fund Regulatory & Development Authority.
Flexibility
The scheme gives flexibility to the citizens to continue their account with as low investment as Rs 500/- at one time and Rs 1000/- per annum.
Low cost scheme
One of the most important features of the product is that it can manage automated asset allocation for each individual account separately by starting with a higher allocation to equities and gradually shifting away to fixed income as one gets older.
Tax Benefits
Income tax benefits for National Pension Scheme investments are available under the following sections.
| Applicable Sections under the Income Tax Act 1961 | Tax Benefits Allowed |
| U/S 80CCD (1) | Own contribution of a subscriber towards Tier I investments tax-deductible within the total ceiling of Rs.1.5 lakh u/s 80C. |
| U/S 80CCD 1(B) | In addition to deductions under section 80CCD (1), subscribers are allowed up to Rs.50, 000 as deductions towards Tier I contributions. |
| U/S 80CCD (2) | Contribution of an employer towards Tier I investments is eligible for deduction up to 14% for central government contributions and up to 10% for others. This deduction is over and above the deduction limit applicable u/s 80C. |
Other tax benefits on NPS Tier I investments include –
- Up to 25% of Tier I contributions withdrawn by a subscriber are exempt from tax.
- Annuity purchase from the National Pension Scheme corpus is tax-exempt. However, income generated from such annuity in the following years is taxable.
- Lump-sum withdrawal of up to 40% of an NPS corpus after a subscriber turns 60 is exempt from tax.
Thus, after 60 years of age if the total corpus created through the National Pension System amounts to Rs. 20 lakh, a lump sum withdrawal of 40%, i.e., Rs.8 lakh will not attract any tax. Further, if you utilise the remaining 60% of funds for annuity purchase, the entire corpus will be tax-free. Only that, income generated from the annuity will be taxable.
Who can Benefit from the NPS?
An individual’s eligibility for the National Pension System depends on the various NPS models in operation
Government sector National Pension System model
The pension system is applicable for government employees, both central and state, except for those employed with the armed forces. Under this model, a contribution of 10% of a government employee’s salary goes to the National Pension System with an equal contribution by the government. Central Government employees receive a contribution of 14% from the government.
Also, all states in the country have implemented NPS National Pension System, excluding the Government of West Bengal.
Corporate model of the National Pension System
As per the corporate model, corporate employees enrolled by their employers can utilise the benefits of the pension system. To do so, they must be Indian citizens between the age of 18 and 60 years fulfilling the KYC requirements.
The model is applicable for entities as under.
- Registered as per the Companies Act.
- Registered under different Co-Operative Acts.
- Identified as Central or Public Sector Enterprises.
- Identified as a proprietary concern.
- Registered as partnership firms or LLPs.
- Incorporated vide order from a State or Central Government.
- Identified as a society or a trust.
- All citizens model of NPS
All citizens of India meeting the following eligibility criteria can voluntarily opt for enrolment and contribute to the NPS pension scheme towards their retirement security.
- He/she should be between 18 and 60 years of age on the date when applying with a PoP service provider.
- He/she should fulfil the KYC requirements as required in the Subscriber Registration Form and submit all necessary documents.
Frequently Asked Questions
Who can make investments with the National Pension System?
Any Indian citizen between the age group of 18 and 60 complying with the KYC
requirements and qualifying for either of the NPS models can invest with the system.
Is saving with the National Pension System allowed for an NRI?
Yes, an NRI can opt for the National Pension Scheme for retirement corpus creation provided he/she maintains the residential status until exit from the scheme.
How would I know if my bank serves as a Point of Presence (PoP) for the scheme or not?
You can check the list of authorised Point of Presence (PoPs) at NPS’s official website to confirm whether your bank serves as a (PoP) or not.
Can an individual invest in more than one National Pension Scheme?
No, the scheme comes with a unique PRAN for each individual and thus does not allow multiple accounts for a single person.
If a subscriber has invested in any other Provident Fund, can I still invest in NPS?
Yes. Investment in NPS is independent of subscribers’ contribution to any Provident Fund.
What are the tax benefits of NPS?
Deductions under Section 80CCD (1)
An individual may claim the tax benefit under section 80CCD(1) up to 10% of the Basic Salary + Daily Allowance with a maximum cap up to Rs 1,50,000/-.
Deductions under Section 80CCD (1B)
Government further allowed from Financial Year 2015-16 additional Rs 50,000/- deductions for the investments made by the individual in the National Pension System.
Deductions under Section 80CCD (2)
Income Tax Act has also included private employer’s contribution in NPS on behalf of employees under the ambit of Section 80CCD (2). All citizens may claim additional benefit of tax deduction up to 10% of Basic Salary + Daily Allowances, if the contribution is made by the employers.
Can a subscriber get loan under NPS?
No. At present, a subscriber cannot avail a loan against his / her NPS holdings
Can a subscriber get loan under NPS?
No. At present, a subscriber cannot avail a loan against his / her NPS holdings
How can a subscriber check the status of his/her PRAN application?
Subscriber can check the status by accessing CRA website: https://cra-nsdl.com/CRA/ by using the 17 digit receipt number provided by POP-SP or the acknowledgement number allotted by CRA-FC at the time of submission of application forms by Nodal Offices. Once the PRAN is generated, an email alert as well as a SMS alert will be sent to the registered email ID and mobile number of the subscriber.
When will the units be credited to my NPS account?
Subscriber’s associated nodal office will upload his / her monthly contribution details to CRA along with transfer of funds to the Trustee bank appointed by PFRDA. CRA will match the contribution details uploaded by the Nodal Office with the amount confirmed by Trustee Bank and instruct the Pension Fund Managers to invest the contribution as per the scheme preference. The units created will be credited by CRA to the Permanent Retirement account.
Which document can a Subscriber use as investment proof in order to avail the tax benefit?
The print out of the Transaction Statement could be used as a document for claiming tax benefit.