National Pension System (NPS) is a government-sponsored pension scheme launched in January 2004 for government employees. However, in 2009, it was opened to all sections. The scheme allows subscribers to contribute regularly in a pension account during their working life. On retirement, subscribers can withdraw a part of the corpus in a lumpsum and use the remaining corpus to buy an annuity to secure a regular income after retirement.
Any Indian citizen between 18 and 60 years can join NPS. The only condition is that the person must comply with know your customer (KYC) norms.
NRI canalso join NPS. However, the account will be closed if there is a change in the citizenship status of the NRI
Individual needs to open an NPS account with entities known as Point of Presence (POP). Most banks, both private and public sector, are enrolled as POPs. Several financial institutions also act as POPs and can be access through the website of Pension Fund Regulatory and Development Authority (PFRDA). https://www.npscra.nsdl.co.in/pop-sp.php individual need to fill the subscriber registration form and submit it along with proof of identity, address, and date of birth to the POP.
Every NPS subscriber is issued a card with 12-digit unique number called Permanent Retirement Account Number or PRAN .
NPS offers two accounts: Tier-I and Tier-II accounts. Tier-I is a mandatory account and Tier-II is voluntary. The difference between the two is on withdrawal of MONEY INVESTED in them. You cannot withdraw the entire money from Tier-I account till your retirement. Even on retirement, there are restrictions on withdrawal on the Tier-I account. While the investoris free to withdraw the entire money from the Tier-II account..
Investor have to contribute a minimum of ₹ 6000 in Tier-I account in a financial year.
If he do not contribute the minimum amount, account will be frozen. he can unfreeze the account by visiting the POP and pay the minimum required amount and a penalty of ₹ 100.
The main benefit is money invested in NPS is managed by PFRDA-registered Pension Fund Managers. At the moment, there are eight pension 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 Management Company, and DSP BlackRock Pension Fund Managers
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.
The Active Choice offers three funds or investment options: Asset Class E (invests 50 per cent in stocks); Asset Class C (invests in fixed income instruments other than government securities); Asset Class G (invests only in government securities). An investor can choose one of these funds or opt for a combination of them.
Investor can change his investment choices once in a financial year for both Tier-I and Tier-II accounts.
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 ₹50,000 under Section 80CCD (1B), which is in addition to Rs 1.5 lakh permitted under Section 80C.
A self-employed person can also contribute 10 per cent of his gross income under Section 80CCD (1) in NPS.
If the investor dies before 60 years, the entire accumulated wealth would be paid to the nominee/legal heir of the subscriber
For withdrawal an application to the POP along with relevant documents need to be submitted 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.