NPS (National Pension Scheme): Benefits, Eligibility & Registration

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By Hiral Vakil on March 6, 2019

NPS is an easily accessible, low cost, tax-efficient, flexible and portable retirement savings account. Pension plans provide financial security and stability during old age when people don’t have a regular source of income. For the purpose of providing social security/welfare to the individual, the employer can also co-contribute to the retirement account along with an individual under this scheme. Retirement plan ensures that people live with dignity and without compromising on their standard of living during later years in life.

Pension scheme gives an opportunity to invest and accumulate savings and get lump sum amount as regular income through annuity plan on retirement. The objective of this scheme is:

  • To provide income during retirement.
  • Provides returns comparable to market over the long run.
  • Acts as a security cover for old age citizens.
Tax Savings & Deductions

Features of NPS (National Pension Scheme): 

When you join NPS, you’ll be allotted a Permanent Retirement Account Number- PRAN; a 12-digit unique ID number. In case you misplace your PRAN card or it gets stolen, it can be reprinted with additional charges. This unique PRAN can be used from any location in India.

Two sub-accounts namely Tier I and Tier II are provided under NPS account:

  • Tier-1: This account is non-withdrawable. One can only withdraw the total amount when they meet exit conditions prescribed under NPS.
  • Tier-2 One can’t hold it unless they have a Tier-1 Account. This account allows the individual to freely withdraw the cash whenever they want to. However, the withdrawn amount will be taxable.

Higher the amount of contributions made, the greater the investments achieved, the more the time period over which the fund accumulates and the lower the charges deducted, the more the benefit of the accumulated pension wealth over time.

Who can invest in NPS?

  • Any citizen of India, whether resident or non-resident, subject to the following conditions: Individuals who are aged between 18 – 60 years as on the date of submission of his/her application is eligible for investment in NPS.
  • The citizens can join NPS either as individuals or as an employee-employer group(s) (corporate) subject to the submission of all required information and Know your customer (KYC) documentation. You can’t make any further contributions to NPS after 60 years of age.
  • Non-residential Indians can also invest in NPS.

How to open an NPS account? 

An Individual can open an NPS account in two different ways:

  1. Online Registration
    • Go to eNPS website and select new registration
    • Choose Aadhaar or PAN as an option to perform KYC verification
    • Enter Aadhaar / PAN details and OTP to start the registration process
    • Fill up all the mandatory details, upload your digital photograph and scanned signature
    • Make a payment towards NPS account from Debit/Credit Card or Internet Banking
    • If you started the registration process via Aadhaar, you can eSign your application and complete the registration process. No need to send the physical copy of a form to CR
    • In case you chose PAN, you need to select ‘Print & Courier’ option, take the print out of the filled form, affix your photograph and send it to NSDL e-Governance Infrastructure Limited. 
  2. Physical submission of Form and KYC documents
    • Download Permanent Retirement Account Number (PRAN) Application Form
    • Fill in the mandatory details, affix the photograph and signature & scheme preference details
    • Submit the Application form along with your address proof and ID proof to your nearest POP-SP
    • Upon submission, POP-SP shall give you receipt number which you can use to track your PRAN Application Status
    • You are required to make the first contribution at the time of applying for registration to any POP-SP. For this, you have to submit NCIS (Instruction Slip) mentioning the payment details.
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What documents are required for opening an NPS account?

The following documents are needed for the opening of an NPS account:

  • Proof of Identity
  • Proof of Address
  • Proof of Date of Birth

What are the tax benefits of NPS? 

SectionProvisionTax Benefits
Section 80CCD(1)Employee’s ContributionThe deductions under this section are available on the amount the individual contributes in his NPS account.Whichever from the following is less, is exempted from taxes10% of the employee’s salary(If the individual is self employed, 10% of the gross income)Rs. 1,50,000*
Section 80CCD(2)Employer’s ContributionIf the employer also contributes to individual’s NPS, the amount won’t have any ceiling limit, provided the contribution doesn’t exceed 10% of the salary.
Section 80CCD(1B)New Pension SchemeThis is a new section, introduced in 2015, that will provide additional deduction of up to Rs 50,000 on the amount contributed in NPS.

The tax benefits are available only in the case of Tier I account; not in Tier II account.

Section 80C: Deductions for Tax Saving Investments

FAQs: 

1. Is contribution to NPS mandatory for salaried employees?

No. Unlike contribution to Employee Provident Fund, contribution to NPS is completely voluntary. It is up to an individual whether he wants to invest in NPS or not. Even self-employed person can open an NPS account and make voluntary investments into the account.

2. What is the difference between Tier I and Tier II account

In tier I account, no withdrawals are allowed until the subscriber reaches 60 years of age while in Tier II, the subscriber can withdraw from his balance anytime he wants.

3. What are the investments limits in NPS? 

Following are the limits of contribution to NPS

  • In Tier I account, minimum Rs. 6000 has to be deposited in a year (minimum contribution is Rs. 500 at one time)
  • In Tier II account, minimum Rs. 2000 has to be deposited in a year (minimum contribution is Rs. 250 at one time)
  • There is no upper limit of investment

4. Can I appoint a nominee for NPS account? 

Yes, you need to appoint a nominee at the time of opening of NPS account. You can appoint up to 3 nominees for your NPS Tier I and Tier II accounts. In case of more than one nominee, you need to specify the percentage of your savings that you wish to allocate to each nominee. Total share percentage across all nominees should aggregate to 100%