National Pension System (NPS)

Features of the NPS Scheme

1. NPS offers two main investment options: Auto Choice and Active Choice.
2. In Auto Choice, the fund manager allocates investments based on your age profile.
3. In Active Choice, you can choose your asset classes, including equities, corporate debt, and government securities.
4. Subscribers can invest up to 50% in equities under Active Choice and the rest in debt or government securities.
5. You can change your fund manager or switch between Auto and Active Choice options, according to guidelines.
6. Partial withdrawals from Tier I contributions are allowed after 10 years of contributions.
7. You can withdraw up to 25% of your contributions, with a minimum of five years between withdrawals.
8. At maturity, 40% of the NPS corpus is tax-free, while the remaining 60% is taxable.
9. You must use at least 40% of the corpus to buy an annuity, which is also tax-free.
10. The tax deduction under Section 80C for NPS has been increased to Rs. 2 lakh per year.

Benefits of the NPS Scheme

The following are some of the significant benefits of NPS scheme: 

1. Offers higher returns than traditional tax-saving investments, such as PPF and has delivered 9.00% to 12% returns so far 
2. The equity exposure is 75% to 50% and 50% for government employees, while it reduces by 2.50% every year when the investor turns 50 years of age 
3. The regular performance of the NPS is monitored, reviewed, and monitoring by the NPS trust as it is regulated by PFRDA 
4. The fund offers flexibility to choose investment amount any time in a financial year 
   

Tax Benefits on National Pension Scheme (NPS) 

NPS investments qualify for tax benefits under the following sections of the Income Tax Act, 1961: 

Additional Tax Benefits for Tier I Investments in NPS 

1. Up to 25% of Tier I contributions withdrawn by the subscriber are tax-exempt. 

1. Annuity purchases made from the NPS corpus are tax-exempt; however, annuity income is taxable in the years it is received. 

1. Up to 40% of the corpus can be withdrawn tax-free after age 60. 

1. For instance, if a corpus of Rs. 20 lakh is built, Rs. 8 lakh (40%) may be withdrawn tax-free. The remaining 60% used to purchase an annuity will be exempt from tax, though the annuity income will be taxable in the future. 

Who Should Invest in the NPS?

NPS is a low-risk investment tool that comes with three models and here is the list of entities that can invest in NPS: 

1. Government model: All the Central (except armed forces) and State Government employees (except West Bengal). The monthly contribution rate for state and central government employees are 10% and 14%, respectively. 
2. Corporate model: As per the employment conditions, companies can adopt NPS at applicable contribution rates for their employees. 
3. All Citizens model: All Indian citizens between age group of 18 years to 65 years can join NPS voluntarily. 

Eligibility Criteria for NPS

Eligibility for the NPS varies by the model, as detailed below: 

Government Sector NPS Model 

1. This model is available for central and state government employees, excluding armed forces personnel. 

1. Government employees contribute 10% of their salary to the NPS, matched by an equal contribution from the state government (14% for central government employees). 

1. The NPS has been adopted by all states in India except West Bengal. 

Corporate NPS Model 

1. Under this model, employees of registered corporate entities can access NPS benefits if enrolled by their employer. 

1. Eligibility requires Indian citizenship, age between 18 and 60, and meeting KYC requirements. 

1. Applicable corporate entities include: 

1. Companies registered under the Companies Act 

1. Co-operatives and societies registered under Co-operative Acts 

1. Central or Public Sector Enterprises 

1. Proprietorships, partnership firms, and LLPs 

1. Organisations incorporated under state or central government orders 

All Citizens Model of NPS 

1. Open to any Indian citizen aged 18–60 who meets KYC requirements. 

1. Applicants may enrol voluntarily through any PoP service provider by completing the Subscriber Registration Form and providing the required documents. 

Documents Required for Withdrawal of NPS Amount

Given below is the list of documents that must be submitted in order to withdraw the amount from NPS:

1. Withdrawal form
2. Original PRAN card
3. Proof of identity that has been attested must be submitted
4. A cancelled cheque must be submitted

Objectives of the National Pension System 

Now that we've explored what the NPS scheme is, let's look at its objectives: 

1. Building a substantial retirement corpus is a critical part of financial planning, helping individuals meet expenses and navigate post-retirement life with ease. 

1. To support the increasing senior population in India, the government introduced the National Pension System (NPS) to encourage structured savings during working years, fostering financial discipline for a secure future. 

NPS Information

Types of NPS Accounts 

The NPS offers two main account types: Tier I and Tier II.

For more information, Check out related articles: NPS Account , NPS Calculator, NPS Interest Rate & NPS withdrawal Rules

Types of NPS Accounts

Tier-I and Tier-II are the two types of NPS accounts. While the Tier-I is a mandatory account, the Tier-II is a voluntary account. The differences between the two accounts are mentioned in the table below:

The NPS account is mandatory for all Central Government employees. They will have to contribute 10% of their basic salary towards NPS. The NPS scheme is voluntary for all other Indian citizens.

Differences Between NPS and Other Tax Saving Schemes

Some of the other schemes that provide NPS tax benefits under Section 80C of the Income Tax Act are Tax-saving Fixed Deposits (FD), Public Provident Fund (PPF), and Equity Linked Savings Scheme (ELSS). Given below is the table where the difference between NPS and the schemes mentioned above are compared:

Even though the returns that are generated from the scheme may be higher than PPF and FD, however, there are no tax benefits on maturity. Individuals who withdraw 60% of the total investments that have been made towards the account should know that 20% of that amount is taxable. However, the taxable amount may vary.

KYC Documents Required to Enroll in the NPS

The following documents are required to be submitted at the time of making the application:

1. Subscriber registration form
2. Photo ID proof
3. Proof for Date of Birth
4. Proof of residence

Different Modes of Payment

The following modes are accepted by SBI for NPS premium payments:

1. Direct payment at an SBI Life branch
2. Through standing order on credit card
3. Online payments
4. Electronic Clearing Service
5. Payments through SBI Life’s mobile app
6. Through National Automated Clearing House (NACH)
7. Through POS terminals at authorized SBI Life branches

Pension Funds Listed under NPS

The following pension funds have been registered under NPS:

1. SBI Pension Funds Pvt. Ltd.

1. UTI Retirement Solutions Ltd.

1. LIC Pension Fund Ltd.

1. HDFC Pension Management Co. Ltd.

1. Kotak Mahindra Pension Fund Ltd.

1. Aditya Birla Sunlife Pension Management Ltd

1. ICICI Prudential Pension Fund Management Co. Ltd.

NPS Customer Care Number

Here are the following details regarding NPS Customer Care Number: 

1. NPS SMS Number: SMS ‘NPS’ to 56677
2. NPS Toll-Free Number for Registered Subscriber (with PRAN): 1800 222 080
3. NPS Call Centre Number: 1800 110 708

Details of the ombudsman are as under:

Shri Narender Kumar Bhola
Pension Fund Regulatory and Development Authority
B-14/A, Chatrapati Shivaji Bhawan,
Qutab Institutional Area, Katwaria Sarai, New Delhi- 110016
Chhatrapati Shivaji Bhawan,

Email Id: ombudsman@pfrda.org.in
Landline No.: 011 - 26517507 Ext : 188