The National Pension Scheme was introduced by the Indian Government in the year 2004. This scheme can be availed by every Indian citizen to fulfill their monetary needs and enhance the post-retirement income. According to this scheme, the individuals have to systematically save their money by investing in an NPS account during the working years.
This instills the discipline for regular investments. It also benefits the individuals after their retirement as the investment accumulates. This is a long-term scheme with a lot of benefits in store for its applicants. Lets read about it in detail.
Features Of The National Pension Scheme NPS
i. Eligibility: Every Indian citizen in the age group 18-65 years who do not come under any NPS sector are eligible to apply for this scheme.
ii. Modes Of Payment: The payment towards the NPS account can be either made in cash, cheque, or a demand draft.
iii. Cost Of Registration: Rs.500 will be charged from every applicant as registration fees for opening an NPS account.
iv. Change Of Scheme: The applicants have the privilege to change the pension scheme if they are not satisfied with the terms and conditions of the policy. The changes can be made between Tier-I and Tier-II.
v. Contribution Towards NPS: The applicants must make a minimum contribution of Rs.500. For Tier-I, the minimum contribution should not be less than Rs.1,000. There is no limit to the maximum contribution.
vi. The Number Of Contributions: At least one contribution should be made every financial year.
Asset Classes In The NPS Account
There are four asset classes in a National Pension System. They are as follows:
- Asset Class E- Here the investments are made inequities.
- Asset Class C– Here the investments are made in Corporate bonds.
- Asset Class G– The investments are done in Central and State Government bonds.
- Asset Class A– Here the investments are made in alternative assets like Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs).
Asset Allocation In The NPS
The asset allocation can either be done by oneself or the individual can outsource it to the NPS fund manager. These choices are called Active and Auto choice. The applicants without prior knowledge of these investments should opt for the auto choice.
1. Active Choice
According to this choice, the account holders are entitled to decide the desired split of the NPS deposits. This amount splits between the applicants and the different classes of the NPS account. The allocation to Class E that is the equity mustn’t be more than 75% of the corpus. This is valid for individuals only up to 50 years. As after turning 51 years, the allocation to equity starts descending according to a defined matrix.
The asset allocation according to the active choice is given below:
Age Equity Allocation
2. Auto Choice
According to this choice, the funds chosen by the account holder will decide the asset allocation process. These funds rebalance the allocation as the account holder ages towards less equity and more debt. The account holders have the privilege to change the allocation twice a year.
The following is the Asset allocation according to auto choice:
a.Aggressive Asset Allocation
b.Conservative Asset Allocation
c.Moderate Asset Allocation
Types Of National Pension Scheme Account
According to the National Pension System, the applicants have to invest their assets in either of the two accounts systematically. The Permanent Retirement Account Number issued to the account holders is used to manage the funds.
1. Tier I Account
This is a permanent retirement account that does not allow withdrawal. At the age of 60, when the account attains maturity 60% of the corpus can be withdrawn. The remaining 40% should be utilized to purchase life insurance or annuity. The balance can either be utilized for purchasing an annuity or withdrawn. This account is eligible for a tax deduction of Rs.1.5 lakh per annum under Section 80C. An additional deduction of Rs.50,000 per annum under Section 80CCD(1B) is also allowed. As per the Union Budget 2019, new reforms have been introduced to this account. Now 60% of the total accumulated assets will be exempted from tax.
2. Tier II Account
This account can be opened only by the account holders of Tier I. it is a retirement-cum-savings account. The withdrawal of funds can be done anytime. Earlier, this account did not offer any tax benefits to the self-employed and the employers from the private sector companies. However, since the FY 2020-21, tax benefits can also be claimed on the tier II accounts. But this can be achieved only with a lock-in period.
The Difference Between Tier I And Tier II Account:
Tax Benefits Under the National Pension Scheme
1. On The Investments
Under Section 80C, tax deductions of up to Rs.1.5 lakh can be claimed on the investments.
Under Section 80CCD(1B) tax benefits can be claimed on investments up to Rs.50,000 and above Rs.1.5 lakh.
Section 80CCD(2) tax benefits can also be claimed on the contribution from the employers. This is valid for up to 10% of the monthly salary of the employee.
2. On Returns
The returns earned through the NPS account are directly proportional to the market conditions. These interests earned are exempt from tax.
3. On Maturity
The NPS account matures when the account holder attains 60 years. At this time 60% of the corpus can be withdrawn by the individual. However, the remaining 40% has to be necessarily invested in an annuity. As per the Union Budget 2019, from FY 2020-21 the entire 60% corpus is exempted from tax. Thereby making NPS a tax-free scheme.
The Withdrawal Process For National Pension Scheme Account
1. Premature Withdrawal
NPS is a pension scheme. Here, individuals need to make investments until the age of 60 years. But premature withdrawal is also permitted under certain circumstances. After the completion of 3 years from the inception of this account, 25% of the invested amount can be withdrawn by the account holders.
These withdrawals are permitted under the following situations:
- Marriage of the account holder’s children.
- Higher studies.
- Medical treatment of the account holder or his family members.
- For purchasing a house or property.
These withdrawals can be made for a maximum of 3 times. Between these 3 withdrawals, there should be a difference of 5 years each. The premature withdrawal is possible only for the tier I account. In the case of tier II, the entire amount can be withdrawn.
2. Withdrawal After Maturity
After the maturity of the NPS account, the entire investment cannot be withdrawn by the account holder. Only 60% of the total investment can be withdrawn. This 60% is completely tax-free. The remaining 40% has to be retained in the NPS account to earn a pension. This 40% is invested in an annuity that provides the monthly pension to the account holders.
Document Needed For The Withdrawal Of The NPS Amount
- Withdrawal form.
- The original PRAN card.
- A canceled cheque.
- Proof of identity.
Procedure To Start An National Pension Scheme Account
The applicants who intend to apply for this scheme can either submit their applicants online or offline.
1. Online Mode
i. The applicants will have to visit the official eNPS website https://enps.nsdl.com to register themselves. On opening the portal, they have to choose the subscriber type. This could be either ‘Individual Subscriber’ or ‘Corporate Subscriber’.
ii. Next, the applicants have to select their residential status. This could be either ‘Citizen of India’ or NRI.
iii. Next is the choice of account. The applicants can either opt for only tier I or both tier I and II.
iv. The applicant has also to select the PoP (Point-of-Presence) with whom he already has an account.
v. The applicant has to link his mobile number, Aadhar Number, and Permanent Account Number to the NPS account.
vi. To verify the applicant, an OTP will be generated on the registered mobile number.
vii. Next, he has to upload his photograph and signature in the .jpeg, .jpg or .png format.
viii. Then the payment for the necessary charges had to be made.
ix. After the successful registration of the applicant, he will receive a Permanent Retirement Account Number (PRAN) which can be used to log into the profile. PRAN is a 12-digit number.
2. Offline Mode
i. The application to open a National Pension Scheme account can be filed in any nearest Point-of-Presence (PoP), bank, or post office.
ii. The duly filled application form should be submitted with KYC documents.
iiii. The PRAN will be sent to the applicant after the first investment.
iv. The PRAN has to be provided with a password. These two will be needed to operate the account.
v. A registration fee of Rs.125 will have to be provided by the applicant.
Login For The National Pension Scheme Account
Every individual who wishes to login to the NPS account needs to have a PRAN. PRAN is a unique 12-digit identification number that identifies the registered individuals. PRAN facilitates the account holders to log in through different mediums.
1. Login Through The NSDL NPS Portal
- Visit the official NPS website www.noscra.nsdl.co.in
- Click on ‘Open your NPS Account/Contribute Online.
- Then upon redirection, select ‘Log in with PRAN’.
- Enter the PRAN and the password.
- After submitting the credentials, the individuals can view the NPS account.
2. Login Through Karvy NPS Portal
- Visit the website https://enps.karvt.com/Login/Login
- Then click on ‘Existing Subscriber Login’.
- Enter the PRAN and the password to view the NPS account.
How To Check The Balance Online?
a. Visit the official NPS portal.
b. Login to the account by entering the PRAN and the password.
c. After logging in click on ‘Transaction Statement’.
d. Holding Statement’ and the ‘Transaction Statement’ can be downloaded by clicking on the option.
CRAs And PoPs
The Central Record-Keeping Agencies CRAs are responsible for maintaining the NPS account and issuing the PRAN (Permanent Retirement Account Number) to the applicants. Other features associated with CRAs include the withdrawal process and premature exits from the NPS. The account holders can directly make the payments on their website. NSDL and Karvy are the two NPS CRAs.
The Point of Presence or PoPs are channels that help the applicants to open an NPS account, accept contributions, and update the details of the applicants on their request. By doing this they are awarded a commission from the NPS corpus. The commission is fixed at 0.25% for every offline contribution and 0.1% for every contribution made online.
National Pension Scheme Charges
Why Should An Applicant Open An NPS Account With Aadhar Card?
- While registering for the NPS, the applicants who submit the Aadhar number do not need to submit a hard copy; As the registration can be authenticated with an e-signature.
- The One-Time-Password (OTP) can verify the e-signature. This is sent on the mobile number registered with the Aadhar card.
- If the applicant needs any assistance during the registration process then they can seek help from the Point-of-Presence.
- Every PoP charge a nominal fee for providing such services to the applicants.
How To Close The National Pension Scheme Account?
The NPS can be closed or exited only in case of the retirement of the account holder, death, or the premature withdrawal from the scheme. To close the account due to any of these reasons then the account holders have to submit forms for every situation.
- Withdrawal form for normal superannuation/incapacitation (retirement of the subscriber)
- Withdrawal form and annexure in case of death of the subscriber.
- We need a withdrawal form for a premature exit from the scheme.
These forms should be duly filled and submitted along with the necessary documents. Apart from this offline procedure the subscribers or the nominees can also close the account online. Here an ID is generated that enables the subscribers to track the status of the closure.
Although the investment from tier II account can be fully withdrawn this is not the same for tier I accounts. A part of the funds will be converted into annuities.
Beneficiaries Of The National Pension Scheme Models
1. Government Sector National Pension Scheme Model
This system is only for government employees. These include Central and state, government employees. The defense forces are excluded from this model.
2. Corporate Model Of National Pension Scheme
This model is for the benefit of the corporate employees enrolled by their employers. The employers should be Indian residents between 18-60 years.
3. All Citizens Model Of NPS
Every citizen of India between the age of 18 years to 60 years can opt for this scheme. He should submit the KYC documents in the registration form to be eligible for this scheme.
Now, we know all about the National Pension Scheme plan. So, The National Pension Scheme can be availed by every Indian senior citizen to fulfill the needs and increase the post-retirement income. So, just invest and enjoy the benefits.