NPS stands for National Pension System. The government of India provides this benefit to government employees. PFRDA (Pension Fund Regulatory Development and Authority) is responsible to provide this benefit to all the subscribers.
The national pension system is based on the Permanent Retirement Account Number. This number is allotted to all the NPS account holders. Furthermore, the responsible authorities promise to give security and benefits to all the NPS account holders.
NPS Scheme
NPS is a National Pension System that is introduced by the government of India. It is a scheme that offers various investment options to subscribers. Additionally, it is a division of the pension funds among all of the NPS account holders.
NPS Scheme Eligibility
The employees that are enrolled by the person holding Indian citizenship and the employees who are between the age of 18-60 years are eligible for the NPS scheme.
There was another policy which was General Provident Fund (GPF). This policy was later replaced with NPS (National Pension System). In addition, the GPF scheme was only available for government employees before January 2004.
Although, NPS is a great scheme that is available for all Indian citizens. It is a benefit to all the individuals who are subscribers. Furthermore, all these subscribers can invest 50% of the total investments according to the E scheme of NPS.
Features of NPS Scheme
An NPS account offers the following benefits or features to all Indian citizens:
- Regulated: NPS is introduced by PFRDA (Pension fund regulator under Ministry of Finance, Govt. of India) which allows individuals to avail the benefit of the government service while investing in their account. The NPS Trust monitors all the steps and ensures adherence to the governing activities.
- Voluntary: NPS is a voluntary scheme that is eligible for all Indians of age 18-60. The best privilege it provides is that it is for everyone. Moreover, subscribers can invest any amount in their NPS account at any time.
- Flexibility: NPS is a very flexible system that allows individuals to make choices. The subscriber can select or change the POP (Point of Presence), fund management, or investment pattern. This system ensures that you can increase returns as per your requirement with the various asset classes.
- Economical: It offers the lowest investment cost that people can avail. The NPS system is a convenient source of investment.
- Portability: The NPS account or PRAN provides the ease of making changes irrespective of the city or state of the subscriber.
- Superannuation Fund transfer: NPS account holders can transfer their Superannuation funds to their NPS account. This can be done without any tax implications. (Post approval from relevant authorities)
NPS Account Types
It is necessary to know about the types of NPS accounts since it is the best way for people to save after retirement. There are two types of NPS schemes:
1. Tier-I NPS Account
This is the basic NPS account for the people who save up for them to utilize after their retirement. The people using this type of NPS scheme can utilize their savings from this account at the age of 60 but not before that.
However, the pensioner can use 60% of his investments and can use the rest of the amount to buy an annuity. Furthermore, the amount in this type of account is tax-deductible which is 2 lakhs per annum under section 80C of Income Tax.
However, according to the Union Budget 2019, the individual who withdraws 60% of the investments at the right age will enjoy the tax exclusion. Hence, NPS becomes a more reliable system for all Indian citizens.
In addition to it, the individual who opens the TIER-I account will have to pay INR 500 for the account and he will also receive a Permanent Retirement Account Number. To keep the account active the subscriber will pay INR 1000/- per annum.
2. Tier-II NPS Account
This is a voluntary retirement and savings account that any individual can open if he already has a Tier-I NPS account. This account does not apply tax and the subscriber can easily withdraw his investments at any time anywhere.
Furthermore, according to the Finance Ministry’s announcement the subscriber can claim tax benefits within the lock-in period.
Apart from that, to open this type of account the individual has to pay INR 250/-. Since there is no tax exemption therefore one will have the same fund management and investment choices as a Tier-I NPS account.
Moreover, the individual who wants to open this type of NPS account should already have the Tier-I account therefore he will not have to show his KYC documents.
How to Open an NPS Account?
There are two ways to open an NPS account. You can either use the online method or offline. Here are the steps to follow for the online method:
- Visit the official website of eNPS
- It is necessary that your number, address, aadhaar number, and PAN card number are linked to your NPS account
- For the validation purpose, the website will send you an OTP on the registered number
- After completing the registration you will receive a PRAN that you can use to log in to your NPS account
There are various banks and post offices where a person can open his NPS account.
Here is the offline method:
- Find the nearest POP and fill out the registration form for the NPS account. Submit the form along with copies of important documents.
- In case you are already a member of the bank you do not need to submit your KYC documents since they will already be in their database.
- For opening the account you need to add INR 500/- to run it. The minimum deposit for the Tier-I account is 1000/-.
- You will receive a permanent retirement account number (PRAN) from the POP. They will also provide you with the password and PRAN which you will use to operate the account online.
Tax Benefits of the NPS Scheme
The income tax department of the government of India has some acts for the tax benefits of the NPS scheme.
Here are the tax benefits that any subscriber can claim:
- 80CCD(1): This act comes under the 80C section that covers self-contribution. The employees who have salaries can claim a 10% deduction. While on the other hand self-employed individuals can claim up to a 20% deduction of their gross income.
- 80CCD(2): It is also a part of section 80C that covers the contribution of the employers toward the NPS account. Self-employed individuals can not have this benefit. Furthermore, the maximum deduction amount for the employee is his NPS contribution or 10% of the basic salary and Dearness Allowance (DA).
- According to section 80CCD(1B), the individuals can claim an additional amount of Rs. 50,000/- as an NPS tax benefit.
Best Performing NPS Schemes
The NPS scheme is a pension contribution system that consists of two types of accounts that are Tier-I and Tier-II. This scheme provides the benefit of investment after retirement.
Here is the list of top-performing NPS schemes:
- SBI PENSION FUND SCHEME A – TIER I
- HDFC PENSION MANAGEMENT COMPANY LIMITED SCHEME E – TIER I
- LIC Pension Fund Scheme E – Tier I
- LIC Pension Fund Scheme E – Tier II
- UTI RETIREMENT SOLUTIONS SCHEME E – TIER II
- SBI PENSION FUND SCHEME E – TIER I
- SBI PENSION FUND SCHEME E – TIER II
- HDFC PENSION MANAGEMENT COMPANY LIMITED SCHEME A – TIER I
- LIC Pension Fund Scheme C – Tier II
- HDFC PENSION MANAGEMENT COMPANY LIMITED SCHEME E – TIER II
- BIRLA SUN LIFE PENSION SCHEME E – TIER II
- BIRLA SUN LIFE PENSION SCHEME E – TIER I
- KOTAK PENSION FUND SCHEME E – TIER I
- ICICI PRUDENTIAL PENSION FUND SCHEME E – TIER II
- UTI RETIREMENT SOLUTIONS PENSION FUND SCHEME E – TIER I
- ICICI PRUDENTIAL PENSION FUND SCHEME E – TIER I
- KOTAK PENSION FUND SCHEME E – TIER II
- HDFC PENSION MANAGEMENT COMPANY LIMITED SCHEME C – TIER I
- KOTAK PENSION FUND SCHEME A – TIER I
- LIC Pension Fund Scheme A – Tier I
- BIRLA SUN LIFE PENSION SCHEME C – TIER I
- HDFC PENSION MANAGEMENT COMPANY LIMITED SCHEME C – TIER
- ICICI PRUDENTIAL PENSION FUND SCHEME A – TIER I
Summary
The NPS is a National Pension System. This scheme is introduced by the government of India to provide benefits to the employees. This is not only for the government employees but also for the self-employees. The scheme offers many benefits with the help of two types of accounts that are Tier-I and Tier-II.
NPS Frequently Asked Questions
Q) What is NPS?
NPS is a National Pension System that the government of India has introduced for its citizens. It is an account that allows pensioners to invest and have benefits after their retirement.
Q) Who can join NPS?
Any Indian resident whether he lives in India or not can join the NPS. the age limit for having an NPS account is 18-60.
Q) Can NRIs apply for NPS Scheme?
The NPS is a vast scheme that is available for the NRIs as well as the Indian living overseas so that they could also have the benefits after their retirement.
Q) What are Tier-1 and Tier-2 NPS accounts?
Tier-I and Tier-II are the two types of NPS accounts. Tier-I is the best account for retirement planning while tier II is for the voluntary savings account.
Q) Can I have more than one NPS account?
No, one can not have more than one NPS account. It is not allowed under NPS.
Q) What is the lock-in period for NPS?
The lock-in period for NPS is quite long. The subscribers can exit NPS at the age of 60. The individual can withdraw at the age of 60.
