Contents
What is NPS scheme?
NPS (National Pension Scheme) is a Government of India sponsored scheme for retired citizens. It serves as a source of pension for senior citizens after retirement.
Who can open an NPS account?
Any citizen of India (above 18 years of age) can open an NPS account and avail the benefits.
Different types of NPS accounts
NPS accounts are mainly of 2 types as follows:
Tier 1
It is a mandatory account. You cannot withdraw money from it prior to retirement. Even after retirement, you can withdraw only up to 60% of the corpus. The remaining 40% has to be invested into Government annuities.
Tier 2
It is a voluntary account. You can withdraw the entire money from it at any time.
Various investment choices in NPS
The NPS offers two choices:
1) Active Choice: This option allows the investor to decide how the money should be invested in different assets.
2) Auto choice or lifecycle fund: This is the default option which invests money automatically in line with the age of the subscriber.
Can an NRI join NPS?
Yes, NRIs can also open an NPS account and make contributions to it. However, when he/she takes citizenship of another country the NPS account will be closed automatically.
Read more: Why do you need to start your retirement planning early?
How do you join NPS?
You can open an NPS account with entities known as Point of Presence (POP). Most of the public and private sector banks are enrolled as POPs. The authorized branches of a POP, called point of presence service providers (POP-SPs), act as the collection points.
If you login to the online banking portal of your bank, you will see an option to register a NPS account there. If you have the PRAN (Permanent Retirement Account Number) available then you can easily register your NPS account online with your bank.
How do you find POPs near you?
You can find details of all the available POPs from the below website of Pension Fund Regulatory and Development Authority (PFRDA):
https://www.npscra.nsdl.co.in/pop-sp.php
What are the documents needed to open an NPS account?
You need to submit the below documents to the POP while opening an NPS account:
- Subscriber registration form
- Proof of identity
- Address proof
- Proof of date of birth.
What is a Permanent Retirement Account Number (PRAN)?
Every NPS subscriber is issued a card with 12-digit unique number called Permanent Retirement Account Number or PRAN.
Minimum contribution in NPS scheme
You will need to make a minimum NPS contribution of Rs.6000 every financial year to your Tier-1 account.
Read more: 10 top ELSS funds of 2019 to invest for tax savings and great returns
What happens if you don’t pay the minimum amount?
If you do not contribute the minimum amount, your account will be frozen. You can unfreeze the account by visiting the POP and paying the minimum required amount and a penalty of Rs 100.
Will the government also contribute to my NPS?
No, the Government will not make any contributions to the NPS account.
Who manages the money that I invested in NPS?
The money in your NPS account is managed by PFRDA registered Pension Fund Managers. Presently there are eight fund managers: ICICI Prudential Pension Fund, LIC Pension Fund, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund, SBI Pension Fund, UTI Retirement Solutions Pension Fund, HDFC Pension Fund and DSPBR Pension Fund managers.
Investment options available under active choice
The NPS offers two choices:
1) Active Choice: This option allows the investor to decide how the money should be invested in different assets.
2) Auto choice or lifecycle fund: This is the default option which invests money automatically in line with the age of the subscriber.
Can I change my scheme and fund managers?
Yes, you can change your scheme preference and pension fund manager. You can even change your investment option (active and auto choices).
Can I have different pension fund managers and investment option for Tier I and Tier II account?
Yes, you can select different pension fund managers and investment options for your NPS Tier I and Tier II accounts.
Tax benefits for NPS subscribers
An employee’s own contribution is eligible for a tax deduction –up to 10 per cent of the salary (basic plus DA) – under Section 80CCD(1) of the Income Tax Act within the overall ceiling of Rs 1.5 lakh allowed under Section 80C and Section 80CCE.
The employer’s contribution to NPS is exempted under Section 80CCD (2).
Moreover, individuals can claim an additional deduction of up to Rs 50,000 under Section 80CCD (1B), which is in addition to Rs 1.5 lakh permitted under Section 80C.
Withdraw money from NPS
You will have to submit the withdrawal application to the POP along with relevant documents. POP would authenticate the documents and forward them to Central Record-keeping Agency (CRA) and NSDL. CRA would register your claim and forward you the application form along with details of documents that need to be submitted. Once you complete the necessary procedure, CRA processes the application and settles the account.
Can I defer withdrawing the lumpsum amount at 60?
Yes you can until you turn 70.
What if I want to take the money out before I am 60?
In that case, you can withdraw only 20 percent of the corpus. With the remaining 80 percent you will have to buy annuity.
What happens if I discontinue the scheme?
Your account will be frozen. You can unfreeze it by paying the minimum contribution along with the penalty.
What if subscriber dies before 60?
The entire accumulated amount will be paid to the appointed nominee.
Process to withdraw money from NPS
You will have to submit the withdrawal application to the POP along with relevant documents. POP would authenticate the documents and forward them to Central Record-keeping Agency (CRA) and NSDL. CRA would register your claim and forward you the application form along with details of documents that need to be submitted. Once you complete the necessary procedure, CRA processes the application and settles the account.
What are the documents needed for withdrawal?
- PRAN card (original)
- Attested copy of ID proof
- Attested copy of address proof
- A cancelled cheque.
What is an annuity?
An annuity provides a regular income (it could be monthly, quarterly, annual, etc) at a specified rate for a specified period chosen by the subscriber. In NPS, a subscriber must use at least 40 per cent of the corpus to buy an annuity. It means the person can pay the money to an Annuity Service Provider (ASP) and choose an annuity option to ensure a regular income after retirement.
Who are the annuity service providers (ASPs)?
Below are the insurance companies appointed by PFRDA as ASPs:
- Life Insurance Corporation of India
2. SBI Life Insurance
3. ICICI Prudential Life Insurance
4. Bajaj Allianz Life Insurance
5. Star Union Dai-ichi Life Insurance
6. Reliance Life Insurance
7. HDFC Standard Life Insurance
What are the various annuity options offered?
Here are some generic annuity options offered by ASPs. Remember, some ASPs may offer a slightly different or combination of these options:
1. Pension (annuity) payable for life at a uniform rate to the subscriber
2. Pension (annuity) payable for 5, 10, 20 years certain and thereafter as long as you are alive
3. Pension (annuity) for life with return of purchase price on death of the subscriber
4. Pension (annuity) payable for life increasing at a simple rate of 3 per cent.
How is the annuity income taxed?
The annuity income is added to your income and taxed as per the slab applicable to you.