National Pension Scheme (NPS)

National Pension Scheme

The National Pension Scheme (NPS) is a government-backed pension scheme in India that allows individuals to save for retirement and earn a regular income during retirement.

The scheme was introduced in 2004 and is administered by the Pension Fund Regulatory and Development Authority (PFRDA). The NPS offers a range of investment options and allows individuals to choose a level of risk that suits their needs and financial goals.

Contributions to the NPS are eligible for tax benefits, and the scheme offers flexible withdrawal options. The NPS is an attractive option for individuals looking to save for retirement.

This article provides an overview of the NPS, including its types and benefits. Also, it explains how the scheme works and how individuals can enroll in the NPS. 

By the end of this article, you will have a good understanding of the National Pension Scheme and how it can help you plan for retirement.

What is National Pension Scheme?

The National Pension Scheme (NPS) is one of the best investment schemes in India. It is a defined contribution pension system for all Indian citizens between 18 and 60 years.

The NPS is designed to provide subscribers with a regular income after retirement based on the contributions made and the investment returns earned during the accumulation phase. 

It offers subscribers a range of investment options and flexible withdrawal options and is managed by the Pension Fund Regulatory and Development Authority (PFRDA).

The NPS is an alternative to traditional pension schemes such as the Employee Provident Fund (EPF) and the Public Provident Fund (PPF). It offers several advantages, such as lower charges and more flexibility.

The National Pension Scheme is an important government initiative that aims to provide Indian citizens with a secure and stable source of income during their retirement years.

Who are Eligible for National Pension Scheme (NPS)?

To open an NPS (National Pension System) account, you must meet the following eligibility criteria:

Age:

You must be an Indian citizen between the ages of 18 and 60.

PAN Card:

A valid PAN (permanent account number) card is required.

Eligibility:

Have a valid Indian passport (for NRIs) and provide proof of NRI status (for NRIs).

Identity and Address Proof:

Provide proof of identity and address.

PRAN:

Have a valid Permanent Retirement Account Number (PRAN).

Initial Contribution:

Make the initial (Tier I require a minimum of Rs. 500, and Tier II require a minimum of Rs. 1000.) contribution to the NPS account.

In addition to meeting the above eligibility criteria, you will also need to provide certain documents when you open your NPS account, such as,

  • Proof of Identity
  • Proof of Address
  • Proof of Date of Birth

These documents may vary depending on the specific NPS scheme you choose and the regulations in your state.

 

Types of National Pension Scheme:

There are two types of National Pension Scheme (NPS) accounts:

  • Tier-I Account
  • Tier-II Account

Tier-I Account:

The Tier-I account is a mandatory, non-withdrawable account that is opened when joining the NPS.

It is designed for long-term savings for retirement and cannot be closed until the individual reaches the age of 60.

Contributions to the Tier-I account are eligible for tax deductions under Section 80CCD (1) of the Indian Income Tax Act.

Tier-II Account:

The Tier-II account is a voluntary, withdrawable account that can be opened by individuals who already have a Tier-I account.

It functions like a regular savings account and allows individuals to save and withdraw money as per their needs.

However, the Tier-II account does not offer any tax benefits.

How to Open NPS Account?

Online:

To open an NPS (National Pension System) account online, you will need to follow these steps:

Step 1: Visit the official NPS website and click on the “Registration” tab.

Step 2: Select the “New PFA” option, which stands for “New Pension Fund Administrator”.

Step 3: Fill out the online registration form with the required personal and contact information.

Step 4: Choose a Permanent Retirement Account Number (PRAN) for your NPS account.

Step 5: Submit the completed form and required documents, such as proof of identity and address.

Step 6: After your application is approved, you will receive a confirmation email or SMS with your PRAN and other details.

Step 7: You can log in to your NPS account using your PRAN and other credentials to manage your account and make investments.

Offline:

To open an NPS (National Pension System) account offline, you will need to follow these steps:

Step 1: Visit a nearby NPS Point of Presence (POP) center. You can find the nearest POP center by visiting the official NPS website and using the “Locate POP” feature.

Step 2: Collect the NPS registration form from the POP center and fill it out with the required personal and contact information.

Step 3: Submit the completed form and required documents, such as proof of identity and address.

Step 4: Choose a Permanent Retirement Account Number (PRAN) for your NPS account.

Step 5: The POP center will process your application and send it to the National Securities Depository Limited (NSDL) for approval.

Step 6: After your application is approved, you will receive a confirmation email or SMS with your PRAN and other details.

Step 7: You can visit the POP center to activate your NPS account and make your first investment.

Documents Required for NPS

To register for a National Pension System (NPS) account, you will need to provide the following documents:

Proof of Identity:

This can be a copy of your PAN card, passport, voter ID card, or any other government-issued ID that shows your name, date of birth, and photograph.

Proof of Address:

This can be a copy of your utility bill, bank statement, rent agreement, or any other government-issued document that shows your current address.

Bank Details:

You will need to provide the details of a savings bank account where your NPS contributions will be deposited and where any withdrawals or annuity payments will be made.

Other Documents:

Depending on your circumstances, you may also need to provide additional documents, such as proof of your date of birth, proof of your employment, or proof of your spouse’s details if you are married.

How to Login NPS Account?

To login your NPS (National Pension System) account, follow these steps:

Step 1: Visit the official NPS website and click on the “Login” tab.

Step 2: Select the “Subscriber Login” option.

Step 3: Enter your Permanent Retirement Account Number (PRAN) and password in the designated fields.

Step 4: Click the “Sign In” button to access your NPS account.

You must do so before logging in if you have not yet set up a password for your NPS account. To create a password, follow these steps:

Step 1: Visit the official NPS website and click on the “Login” tab.

Step 2: Select the “Subscriber Login” option.

Step 3: Select the “Forgot Password” option.

Step 4: Enter your PRAN, email address, and date of birth in the designated fields.

Step 5: Click the “Submit” button to receive a one-time password (OTP) via email or SMS.

Step 6: Enter the OTP in the designated field and click on the “Verify” button.

Step 7: Create a new password for your NPS account and confirm it by entering it again in the designated field.

Step 8: Click the “Submit” button to save your new password and access your NPS account.

How to Check NPS Balance?

To check the balance of your NPS (National Pension System) account online, follow these steps:

Step 1: Visit the official NPS website and click on the “Login” tab.

Step 2: Select the “Subscriber Login” option.

Step 3: Enter your Permanent Retirement Account Number (PRAN) and password in the designated fields.

Step 4: Click the “Sign In” button to access your NPS account.

Step 5: Once logged in, click on the “View Statement” tab to view your account balance and other details.

Benefits of NPS (National Pension Scheme)

There are several benefits of having an NPS account, including the following:

Long-Term Savings:

NPS is a long-term savings scheme that allows you to save for your retirement and build a corpus to meet your retirement goals.

Tax Benefits:

Contributions to your NPS account are eligible for tax deductions under Section 80C of the Income Tax Act up to a maximum of Rs. 1.5 lakhs per year.

Flexibility:

NPS offers a range of investment options, including equity, government bonds, and corporate bonds, so you can choose the option that best suits your risk appetite and investment goals.

Portability:

Your NPS account is portable, so you can continue contributing to it even if you change your job or location.

Attractive Returns:

NPS has consistently delivered attractive returns, making it a compelling investment option for long-term savings.

Security:

NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which ensures the safety and security of your investments.

Overall, having an NPS account can help you save for retirement, enjoy tax benefits, and invest in various options to grow your wealth over the long term.

NPS Tax Benefits

There are several tax benefits available under the National Pension Scheme, including:

Contributions made by an individual to their NPS account (up to 10% of their salary for salaried individuals) are eligible for tax deductions under Section 80CCD (1) of the Income Tax Act. 

There is a deduction limit of Rs. 1.5 lakhs available under Section 80C, which is over and above this amount.

Additionally, an individual can claim an additional deduction of up to Rs. 50,000 for contributions made to their NPS account under Section 80CCD (1B) of the Income Tax Act.

The interest earned on the investments made under the NPS is tax-free.

The maturity amount received on exiting the NPS (after completing 60 years of age) is tax-exempt, up to 60% of the total amount. The remaining 40% of the maturity amount is taxable.

Types of Funds in NPS India:

Under the National Pension Scheme (NPS) in India, individuals can choose to invest their retirement savings in one of the following three types of funds:

Equity Funds:

These funds invest a major portion of the individual’s savings in equity securities, such as stocks, to generate long-term capital growth.

Corporate Bond Funds:

These funds invest in fixed-income securities issued by companies, such as bonds and debentures, to provide regular income to the investor.

Government Securities Funds:

These funds invest in government securities, such as treasury bills and government bonds, to provide a relatively safe and stable return on the individual’s savings.

It is important to note that the allocation of an individual’s savings across the different types of funds is based on the individual’s risk profile and investment objectives.

The allocation of funds may be reviewed and changed periodically based on the performance of the funds and the individual’s changing needs. 

It is always advisable to consult a qualified financial advisor to determine the right investment strategy for your retirement savings.

What are the Different Sectors in NPS?

Individuals can choose to invest their retirement savings in one of the following three sectors:

Government Sector:

  • It offers low-risk investment options, such as government securities and fixed-income instruments.
  • It provides a stable and secure return on the individual’s savings.

Corporate Sector:

  • It offers medium-risk investment options, such as corporate bonds and equity-oriented schemes.
  • It provides a balanced return on the individual’s savings.

Alternative Sector:

  • It offers high-risk investment options, such as real estate and infrastructure.
  • It provides the potential for higher returns on the individual’s savings.

Can NRI invest in NPS?

NPS accounts are available to non-resident Indians (NRIs), subject to certain conditions and restrictions. Some of the key points to consider when opening an NPS account as an NRI are:

Eligibility:

NRIs must have a valid Indian passport and provide proof of their NRI status to be eligible to open an NPS account.

Types of Accounts:

NRIs can open and maintain Tier-I and Tier-II NPS accounts.

Contributions:

Contributions to the NPS account must be made in Indian Rupees (INR) only and can be made from an NRO or NRE bank account.

Investment Options:

NRIs can choose to invest their savings in any available funds and sectors under the NPS, subject to the rules and regulations governing NPS investments.

Withdrawal:

NRIs can exit the NPS and withdraw their savings only after reaching the age of 60. The withdrawal of funds is subject to the applicable tax laws.

NPS Withdrawal Process

If you are an NPS account holder, you may be able to withdraw a portion of your accumulated savings upon reaching a certain age or under certain circumstances, such as retirement or permanent disability.

Submitting a Withdrawal Request:

To withdraw from your NPS account, you must submit a withdrawal request to the pension fund manager who manages your account.

You will need to provide proof of your identity and other required documents, such as proof of your age or proof of permanent disability, if applicable.

Processing the Withdrawal Request:

Once your withdrawal request has been received, the pension fund manager will process it and transfer it to your designated bank account.

The amount of money you can withdraw will depend on the rules and regulations of the NPS and the savings you have accumulated in your account.

Limitations on Withdrawals:

It is important to note that not all of your NPS savings will be available for withdrawal. Under the current rules, you can withdraw up to 60% of your accumulated savings upon reaching the age of 60.

The remaining 40% must be used to purchase an annuity, which provides a regular income during your retirement.

Getting Help:

If you have questions about the NPS withdrawal process, contact the pension fund manager who manages your NPS account for more information.

NPS Calculator

A National Pension System (NPS) calculator is a tool that allows you to estimate the amount of money you can expect to receive from your NPS account upon reaching retirement age. 

The calculator uses information such as your current age, the amount of money you are currently contributing to your NPS account, and the expected rate of return on your investments to estimate your future pension benefits.

To use an NPS calculator, you will need to enter the following information:

Current Age:

You are currently contributing to your NPS account at this age.

Retirement Age:

This is the age at which you plan to retire and start receiving pension benefits from your NPS account.

Current Monthly Contribution:

This is the amount you currently contribute to your NPS account each month.

Expected Rate of Return:

This is the expected rate of return on your investments. The NPS invests your contributions in government securities, corporate bonds, and equity. The predicted rate of return is an estimate of the average rate of return you can expect on your investments over the long term.

Based on this information, the NPS calculator will estimate the total amount of money you can expect to receive from your NPS account upon reaching retirement age.

It will also show you how this amount is calculated and provide other useful information, such as the expected return on your investments and the projected value of your NPS account at various points in the future.

You can use an NPS calculator to help you plan for retirement and make informed decisions about your NPS investments.

However, it is important to remember that the calculator only estimates your future pension benefits and is not a guarantee of the actual amount you will receive.

The actual amount may vary depending on factors such as the actual rate of return on your investments and changes to the rules and regulations of the NPS.

Conclusion

NPS is a retirement savings scheme operated by the Government of India. It allows individuals to save for their retirement by making regular contributions to a pension account.

The NPS offers several benefits, such as low costs, flexibility, and choosing your investment options. Individuals can ensure a secure financial future for themselves and their families by participating in the NPS.

Overall, the NPS is an important tool for saving for retirement and should be considered by anyone looking to plan retirement in India.