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National Pension Scheme – All You Need to Know

The National Pension Scheme or NPS is a voluntary retirement scheme that helps you to create an old-age pension or a retirement corpus. This scheme is available to all Indian citizens whether resident or non-resident between 18 and 65 years of age and is managed by PFRDA (Pension Fund Regulatory and Development Authority). One can contribute to the NPS until they are 70 years old and can join as late as when they are 60 years old.

The National Pension Scheme is useful for employers, employees, and also self-employed where the self-employed and employees can subscribe to the National Pension Scheme independently, and the employers have the choice to offer PF or NPS to their employees.

All you need to know about the National Pension Scheme –

1. How to invest in a National Pension Scheme account?

  •  Offline process –

To open a National Pension Scheme account offline or manually, you will have to find a PoP – Point of Presence or even a bank too which is registered with the PFRDA. After that, collect a subscriber form and submit it along with the KYC papers. The PoP will send you a PRAN (Permanent Retirement Account Number) once you make the initial investment of not less than Rs. 500 or Rs. 250 monthly or Rs. 1000 annually.

There will be a one-time registration fee of Rs. 125 for this process and after that, you’ll get the account number and password in your sealed welcome kit which will help you operate your account.

  •  Online Process –

Opening an account online is easier as it takes less than half an hour if you link your account to your Aadhaar, PAN, and mobile number.

An OTP will be sent to your registered mobile number after which you can validate your registration as it will generate a PRAN (Permanent Retirement Account Number).

2. Eligibility criteria and its maturity period

  • Eligibility Criteria:

Individuals aged between 18 and 65 years can join the NPS. Both Indian citizens and Non-Resident Indians (NRIs) are eligible to participate. Applicants must comply with Know Your Customer (KYC) norms.

  • Maturity Period:

The maturity period of the NPS is till the age of 60 for most subscribers. After reaching the age of 60, a portion of the accumulated corpus can be withdrawn as a lump sum, and the remaining amount must be used to purchase an annuity to provide a regular pension.

3. How to log in to your National Pension Scheme account for the first time?

  • Step 1 – You must have a 12-digit Permanent Retirement Account Number (PRAN) to log into your NPS Account.
  • Step 2 – Then visit the official portal of NSDL CRA.
  • Step 3 – Enter your Date of Birth, new password, confirm pass, PRAN, and enter the captcha. After that click on the submit button.
  • Step 4 – You’ll receive an IPIN, which can be used for logging into the NSDL portal.
  • Step 5 – Click on the ‘Login with PRAN/IPIN’ option after logging into the NSDL NPS page.
  • Step 6 – Use IPIN and PRAN to sign into your NPS account on the next page.

4. Benefits of the National Pension Scheme –

1. Tax Benefits: Contributions to NPS are eligible for tax deductions under Section 80C and Section 80CCD(1B) of the Income Tax Act, up to a specified limit.

2. Retirement Corpus: NPS helps build a substantial retirement corpus through regular contributions and investments in market-linked instruments.

3. Choice of Investment: NPS offers the flexibility to choose between equity, corporate bonds, and government securities as investment options, catering to varying risk appetites.

4. Low Cost: NPS has a low-cost structure compared to traditional retirement schemes, which allows a higher portion of contributions to be invested.

5. Regulated and Safe: The NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) to ensure a secure and transparent system for retirement savings.

5. Early withdrawal or Exit Rules

  • Normal Superannuation: Upon reaching the age of 60, a subscriber can withdraw up to 60% of the accumulated NPS corpus as a lump sum. The remaining 40% must be used to purchase an annuity from an insurance company, which will provide a regular pension.
  • Exit before the age of 60: If a subscriber decides to exit the NPS before reaching the age of 60, they are required to use at least 80% of the accumulated corpus to purchase an annuity. Only the remaining 20% can be withdrawn as a lump sum.
  • Exit due to Death: In the event of the subscriber’s death, the entire accumulated corpus will be paid to the nominee/legal heir, and they have the option to receive it as a lump sum or purchase an annuity.
  • Partial Withdrawal: Under certain circumstances, partial withdrawals are allowed from the NPS account for specific purposes, such as higher education, marriage, buying a house, or medical emergencies. However, there are limits on the number of partial withdrawals and the maximum amount that can be withdrawn.

6. Pension Fund Companies under the National Pension Scheme and best schemes available under the same

Some of the prominent Pension Fund Companies under the National Pension Scheme include:

  1. LIC Pension Fund Ltd.
  2. SBI Pension Funds Private Ltd.
  3. UTI Retirement Solutions Ltd.
  4. HDFC Pension Management Company Ltd.
  5. ICICI Prudential Pension Funds Management Company Ltd.
  6. Kotak Mahindra Pension Fund Ltd.
  7. Max Life Pension Fund Management
  8. Axis Pension Fund Management Ltd.
  9. Aditya Birla Sun Life Pension Management Ltd.

7. Tax benefits of the National Pension Scheme

  • Tax Deduction on Contributions: Individuals can claim tax deductions under Section 80CCD(1) for contributions made towards their NPS account, subject to a maximum of 10% of their salary (for salaried individuals) or 20% of gross income (for self-employed individuals).
  • Additional Deduction for Self-Employed: Self-employed individuals can claim an additional tax deduction under Section 80CCD(1B) for contributions up to Rs. 50,000 over and above the limit mentioned in point 1.
  • Employer’s Contribution: If an employer contributes to an employee’s NPS account, the employee can claim a tax deduction on that contribution under Section 80CCD(2) up to 10% of their salary.
  • Tax-Free Withdrawals: At the time of retirement or on reaching the age of 60, an individual can withdraw up to 60% of the accumulated NPS corpus as a lump sum, which is tax-exempt. The remaining 40% must be used to purchase an annuity, from which the pension income is taxable.

The National Pension Scheme (NPS) offers several advantages, making it a popular retirement savings option for individuals in many countries. Firstly, it provides a systematic and disciplined approach to saving for retirement, encouraging long-term financial planning. Secondly, NPS offers tax benefits, with contributions eligible for deductions under the Income Tax Act. Thirdly, it provides a choice of investment options, allowing individuals to select their preferred asset allocation based on risk tolerance and return expectations. These advantages make the National Pension Scheme an attractive and effective retirement savings avenue.

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