The National Pension System NPS Scheme is a voluntary long-term investment retirement benefits scheme established by the Government of India to provide all subscribers with a regular income after they retire. The Pension Fund Regulatory and Development Authority (PFRDA) and the Central Government regulate the National Pension Scheme (NPS) India, This article has covered the following topics.
What is NPS Scheme
The National Pension Scheme is a govt-sponsored social security scheme. Except for individuals in the military forces, this pension program is open to employees from the public, private, and even unorganized sectors. The program encourages employees to invest in a pension account at regular intervals throughout their employment period. Subscribers can withdraw a set amount of the corpus after their retirement. After you retire, the leftover money will be paid to you as a monthly pension if you have an NPS account.
Previously, the NPS plan only applied to government employees working at the central level. The PFRDA has now made it available to all Indian people on a voluntary basis. For anyone who works in the private sector and needs a monthly pension after retirement, the NPS system is invaluable. With tax incentives under Section 80C and Section 80CCD, the plan is portable across employment and places.
Who is eligible to invest in NPS Scheme?
Salaried people who want to take advantage of the 80C deductions should also consider the NPS Scheme. The NPS is a wonderful option for anyone who wants to start saving for retirement early and isn’t afraid of taking risks. A regular pension (income) in retirement will undoubtedly be beneficial, particularly for those who retire from private-sector jobs. A well-planned investment like this can have a significant impact on your life after retirement.
NPS Features & Benefits
Every subscriber to the National Pension System (NPS) is assigned a unique Permanent Retirement Account Number (PRAN). The Government of India has made the scheme secure from a security standpoint and has offered several appealing perks to NPS account holders in order to encourage savings.
Following are the benefits of having an NPS account:
- Regulating authority:PFRDA (Pension Fund Regulatory Authority under the Ministry of Finance, Government of India) regulates NPS, ensuring that the operations are governed by transparent rules. The NPS Trust monitors and make sure that the rules are followed.
- Superannuation Fund transfer:NPS account members can move funds from their superannuation to their NPS account without incurring any tax consequences. (After receiving consent from the concerned authorities).
- Flexibility:You can choose or alter the POP (Point of Presence), fund manager, and investing pattern at any time. This allows you to optimize returns based on your comfort level with various asset classes (equity, government securities, corporate bonds, and alternative assets) and fund managers.
- Type of scheme:It is a voluntary scheme open to all Indian nationals. You can invest any amount and at any moment in your NPS account.
- Portability:Regardless of a change in work, city, or state, your NPS account or PRAN will remain the same.
- Economical:The NPS is one of the most cost-effective investment options.
- Returns / Interest: A portion of the NPS goes into equities (this may not offer guaranteed returns). It does, however, provide significantly better returns than other classic tax-saving investments such as the PPF. This program has been in place for more than a decade and has produced annualized returns of 8% to 10%. If you are dissatisfied with the performance of your fund manager, you can change it in NPS.
- Risk Assessment:The National Pension Scheme currently has a cap on equity investment ranging from 75 percent to 50 percent. This cap is set at 50% for government personnel. Beginning the year the investor turns 50 years old, the equity portion of the portfolio will be reduced by 2.5 percent per year in the prescribed range.The cap, on the other hand, is set at 50% for investors over the age of 60.
This protects the corpus from equity market volatility by stabilizing the risk-return equation in investors’ best interests. When compared to other fixed-income schemes, NPS has better earning potential.
- Tax efficiency – NPS tax benefit: For NPS, you can claim a deduction of up to Rs.1.5 lakh – for both your contribution and the employer’s contribution. – 80CCD (1) (part of Section 80C) covers the self-contribution.The maximum deduction allowed under section 80CCD (1) is 10% of the salary, but no more than that. This ceiling is set at 20% of gross income for self-employed taxpayers.
The employer’s NPS contribution is covered under Section 80CCD (2), which is not included in Section 80C. Self-employed taxpayers are ineligible to enjoy this benefit.The lowest of the following amounts is the maximum amount that can be deducted:
- Actual NPS contribution by employer
- Gross total income
- 10% of Basic + DA
You can claim any additional self-contribution (up to Rs 50,000) as an NPS tax advantage under section 80CCD (1B). As a result, the scheme allows for a total tax reduction of up to Rs 2 lakh.
- Withdrawal Rules After 60: You cannot withdraw the entire corpus of the NPS system after retirement, contrary to popular assumption. In order to obtain a regular pension from a PFRDA-registered insurance firm, you must set aside at least 40% of your corpus.
The remaining 60% is currently tax-free. According to the most recent government announcement, the whole NPS withdrawal corpus is tax-free.
- Early Withdrawal and Exit rules: It is critical that you continue to invest in your pension plan until you reach the age of 60. If you have been investing for at least three years, you may withdraw up to 25% for specific reasons. These include, among other things, building/buying a house, children’s weddings or higher education, or self/family medical treatment.
During your tenure, you can withdraw up to three times (with a five-year break between each withdrawal). Only tier I accounts are subject to these restrictions; tier II accounts are not.
The NPS invests in a variety of schemes, with Scheme E focusing on equity. A maximum of 50% of your investment can be allocated to equities. There are 2 types of investments. One is auto choice and another is an active choice.
- Equity Allocation Rules: You can choose the scheme and divide your money with active selection. As per your age, the auto decision defines the risk profile of your assets. For example, as you get older, your investments become steadier and less risky.
- Option to change the Scheme or Fund Manager: If you are unhappy with the performance of the pension scheme or the fund manager, you can change it using NPS. This option is accessible for accounts in both tiers I and II.
As a result, if the foregoing benefits match your risk profile and investment aim, you should consider investing in the NPS scheme. If you want more equity exposure, however, there are many mutual funds that appeal to investors from many sorts of backgrounds.
Open an NPS Account
The NPS is governed by the PFRDA, which provides both an online and an offline option for opening an account.
Offline Process of Opening an NPS Account
To open an NPS account manually or offline, you must first locate a PoP – Point of Presence (which might be a bank). Obtain a subscriber form from your nearest PoP and submit it with your KYC documents. If you’re already KYC-compliant with that bank, then ignore it. The PoP will provide you a PRAN – Permanent Retirement Account Number – once you make the initial deposit (not less than Rs.500 or Rs.250 monthly or Rs.1, 000 annually).
This number, along with the password provided in your sealed welcome kit, will assist you in managing your account. This process has a one-time registration charge of Rs.125.
Online Process of Opening an NPS Account
In less than half an hour, you can easily open an NPS account. All you need to do is to link your account to your PAN, Aadhaar, and cellphone number to open an account online (enps.nsdl.com) is simple. After that the OTP delivered to your phone can be used to verify your registration. This will generate a PRAN (Permanent Retirement Account Number) that you can use to log on to the National Pension System.
Types of NPS Account
Basically, Tier I and tier II accounts are the two most common NPS accounts. The first is the default account while the second is an optional addition. Everyone who participates in the NPS Scheme must have a Tier-I account. Employees in the Central Government are required to contribute 10% of their basic wage. The NPS is a voluntary investing option for everyone else.
Read below to know more about these two types of accounts:
|Particulars||NPS Tier-I Account||NPS Tier-II Account|
|Tax exemption||Up to Rs 2 lakh p.a. (Under 80C and 80CCD)||1.5 lakh for government employees Other employees-None|
|Minimum NPS contribution||Rs 500 or Rs 500 or Rs 1,000 p.a.||Rs 250|
|Maximum NPS contribution||No limit||No limit|
NPS Scheme & Other Tax Saving Schemes Comparison
Read the table below to know the different tax saving ways in comparing with NPS
|Investment||Interest||Risk Profile||Lock-in period|
|NPS||8% to 10% (expected)||Market-related risks||Till retirement|
|PPF||8.1% (guaranteed)||Risk-free||15 years|
|ELSS||12% to 15% (expected)||Market-related risks||3 years|
|FD||7% to 9% (guaranteed)||Risk-free||5 years|
- Although the NPS earns larger returns than the PPF or FDs, it is not as tax-efficient when it comes to maturity.
- As an example, your NPS account allows you to withdraw up to 60% of your total balance.
- Twenty percent of this is taxed. The taxability of NPS withdrawals may change in the future.
Comparison of NPS with ELSS
- The National Pension Scheme has the advantage of having equity allocation. The equity allocation, however, is still lower than that of tax-advantaged mutual funds.
- Equity-Linked Savings Schemes (ELSS) invest mostly in equities and can produce larger returns than the National Pension Scheme (NPS). Tax-saving mutual funds have a shorter lock-in period than NPS — only three years compared to five years for NPS.
- Furthermore, if you are a high-risk taker, NPS equity exposure will not be enough in the long run. Because ELSS may achieve that condition, it is better suited to investors with a higher risk appetite.
How to Login NPS Account First Time
You’ll need a 12-digit Permanent Retirement Account Number to get into your NPS account (PRAN). To obtain PRAN, submit the required documentation on the NSDL Website or at a Point of Presence (POP) service provider. Read the below steps carefully to log in NPS account.
- First of all visit the official website of National Pension System Trust i.ehttps://enps.kfintech.com/login/login/ to access the eNPS login page.
- Now remember, you need to click on the link ‘Click here to generate or reset your password if you are a first-time user’ at the bottom of the page, if you are a first-time visitor,
- After that fill the boxes with PRAN, date of birth, and captcha respectively to generate OTP and click on the ‘Submit’ option.
- Your registered mobile number will receive an OTP. Your password will be validated once you enter this OTP on the screen.
- After that return to the login page and type in your PRAN, password, and captcha. Select the ‘Login’ option.
- You will beauromatically routed to your account’s home page.
When will My NPS Account be Credited with the Units?
On the day that the PFM invests the subscriber’s contribution, units will be credited to the subscriber’s account (Pension Fund Manager). The time it takes for a unit to be credited to a subscriber’s account is T+2 days, with T being the date the funds were received at the Trustee bank. In the CRA system, this action is known as settlement, and it occurs when a contribution is transmitted from POP to PFM for investment in a subscriber’s specified scheme, and the PFM declares the NAV of the day, and Units are distributed to the subscriber.
Let’s understand using the following example:
POP, as the NPS subscriber’s interface, gathers NPS contributions from subscribers, uploads contribution information to the CRA system, and deposits the contributions to the Trustee Bank at the same time. When the Trustee Bank receives a contribution, it enters the information into the CRA system. The settlement process in the CRA system is started once these two pieces of information (contribution details from POP and contribution receipt information from Trustee Bank) are received.
NPS Fees and Charges
Among similar investment products, NPS has one of the lowest service charges. PFRDA is in charge of these fees.
|Intermediary||Charge Head||Service Charge (+taxes)||Method of Deduction|
|POP Services||New Subscriber Registration||Rs.200||To be collected upfront|
|Initial & Subsequent Contribution||0.25% of the contribution Min:Rs20 & Max:Rs.25,000|
|All Non-Financial transaction||Rs.20|
|CRA||NCRA(NSDL)||KCRA(Karvy)||Through cancellation of units|
|Account Opening Charge||Rs.40||Rs.39.36|
|Annual Maintenance Charges||Rs.95||Rs.57.63|
|Pre Transaction (Financial/Non-Financial)||Rs.3.75||Rs.3.36|
|Custodian||Asset maintenance (Per Annum)||0.0032% of AUM||Through adjustment in NAV|
|PFM||Investment Management (Per Annum)||0.01% of AUM|
|NPS Trust||Reimbursement of Expenses||0.01% of AUM||Through adjustment in NAV|
|Trustee Bank||Trustee Bank charges||No charges levied of Trustee Bank|
- Contribution charges of 0.25 percent or Rs 20 whichever is higher
- eNPS application KYC verification charges of Rs 125 + taxes
- Other taxes / regulatory levies that may be applicable from time to time
File a Complaint or Grievance
NSDL-CRA has developed a multi-layered grievance redressal system that is simple, rapid, responsive, and effective. You have the option of filing a grievance/complaint via one of the following methods:
- By logging onto their account, a subscriber can file a complaint against any entity covered by NPS. Alternatively, users can file the grievance/query in the “Log Your Grievance / Enquiry” area of our website’s “Subscriber’s Corner.” Subscribers can use this platform to register grievances/questions even if they do not have the PRAN details.A token number will be presented on the screen after successful registration for future reference.
- Subscribers can register a grievance by calling the NSDL-CRA call center at the toll-free number. The subscriber must authenticate themselves using the T-pin assigned to the grievance. The Customer Care professional will give a token number to your grievance after successfull registration for future reference.
- Subscribers can also submit their complaints to the POP – SP in a designated format. On the form, the subscriber must specify the PRAN as the method of authentication. Subscriber will receive an acknowledgement receipt after submitting the form to the POP-SP. If you provide an email address, the token number will be given to you by NSDL-CRA; otherwise, it will be emailed to the POP-SP.
Is it possible for a Subscriber to contribute to his or her NPS account before receiving the PRAN Card?
Yes. You only need a Permanent Retirement Account Number to contribute to the NPS. Once you have a PRAN, contributions can be made regardless of whether or not you have the PRAN card.
What is the NPS’s minimum contribution requirement?
At the time of registration, a Subscriber must make an initial contribution (minimum of Rs. 500 for Tier I and Rs. 1000 for Tier II).
A Subscriber can make a contribution on the following requirements:
For Tier I:
In addition to the mandatory minimum of one contribution in Tier I, a Subscriber may choose the frequency of contributions throughout the year at his or her discretion.
For Tier II:
Which user ID I will use to login into the NPS account?
Your Permanent Retirement Account Number (PRAN) will be your user ID to log in to the eNPS-NSDL website. Take your 12 digit number from the NSDL website.