Introduction:

The National Pension Scheme (NPS), introduced by the Government of India in January 2004, is a voluntary contribution-based retirement benefits scheme. It extends to all Indian citizens, encompassing those in the unorganized sector, with the objective of ensuring a dependable pension income for retirees. Participation in the scheme mandates individuals to open an NPS account and make regular contributions throughout their employment tenure.

NPS:

The National Pension Scheme, a scheme launched by the Government of India, aims to extend retirement benefits to all citizens of the country, and to promote a culture of saving for retirement. Launched by the Government of India in 2004, the National Pension Scheme comprises both a pension scheme and a financial scheme. The scheme  administered by  Pension Fund Regulatory Development Authority (PFRDA).

The scheme aims to provide social and economic security for the elderly. NPS empowers you to better plan your retirement with incredible long-term savings. NPS encompasses employees from the public, private, and unorganized sectors, with the exception of those serving in the armed forces. Any Indian citizen aged between 18 and 60 years can open a National Pension Scheme account.

The main objective of this scheme is to motivate citizens to consistently invest in a pension account throughout their professional lives. Consequently, contributors can withdraw a portion of the fund upon retirement while receiving the remainder as a monthly pension.

Objectives of NPS:

• Now you’re familiar with the NPS scheme, let’s delve into its objectives.
• It not only enables individuals to meet their expenditure requirements but also facilitates a smoother transition into post-retirement life with minimal hassles.
• The scheme facilitates systematic savings during one’s working years, instilling financial discipline and encouraging individuals to save for the future.
• Creating a substantial corpus for one’s retirement phase is a crucial aspect to address during financial planning.
• To tackle the challenge posed by the increasing senior citizen population in the country, the Indian Government introduced schemes such as the National Pension System .

Features of an NPS Account:

• Here are some key features of an National Pension System account that you should be aware of:
• You will have the flexibility to change your fund manager, point of presence, and investment pattern, which, if done wisely, can maximize your return on investment. Account holders can invest any amount of money at any time into the account.
• NPS boasts a low cost of investment.
• NPS funds are strictly monitored by the PFRDA to ensure strict adherence to guidelines.
• Also, your PRAN or National Pension System account will remain unchanged irrespective of changes in job, city or country.
• NPS account holders can transfer their superannuation fund without incurring any tax implications.
• Upon reaching retirement age, you can withdraw up to 60% of your NPS corpus tax-free, with the remaining 40% needing to be converted to an annuity plan. Additionally, after a minimum of 3 years, you can also withdraw up to 25% of your Tier I funds for specific reasons such as higher education, home purchase, marriage, or medical emergencies.
• You can withdraw up to 25% of a portion of your contribution within three years from the date of account opening. However, this option only applies under specific circumstances, such as buying a home or funding higher education for children.
• A portion of the NPS is allocated to equities, which may not provide guaranteed returns but offers significantly higher returns compared to other traditional tax-saving investments like the PPF.
• Operating for more than a decade, the scheme has consistently delivered annual returns ranging from 9% to 12%. Moreover, under NPS, you have the option to change your fund manager if you are not satisfied with the performance of the fund.

Who Should Invest:

• NPS is an ideal plan for individuals who want to plan ahead for their retirement and have a low risk tolerance. A retirement pension would certainly be beneficial, especially for those retiring in the private sector.
• This strategic investment can have a huge impact on your life after retirement. Of course, regular salaried individuals aiming to maximize their 80C deduction should also explore this scheme.
• Investing in the National Pension System can significantly influence your retirement life. In fact, individuals employed in roles aiming to optimize their 80C deductions can also consider exploring this scheme.

Tax Benefits of NPS:

• Employees who contribute to the National Pension System can enjoy the following tax benefits on their contributions.
• Employees claim tax deduction up to 10% of their salary (Basic + DA) under Section 80CCD(1), subject to maximum tax of Rs. 1.5 lakh under Section 80CCE.
• Tax deduction up to Rs. 50,000 is available under Section 80CCD(1B), in addition to the general limit of Rs. 1.5 lakh under Section 80CCE.
• Self-employed persons contributing to NPS can claim tax benefits on their contributions, including deduction of 20% of gross income under section 80CCD(1), subject to an overall limit of Rs. 1.5 lakh under Section 80CCE.
• Partial withdrawals from NPS are eligible for tax when the amount withdrawn is up to 25% of their own contribution, subject  the conditions and criteria prescribed by the PFRDA under Section 10(12B).
• The employer can claim a tax deduction for their contribution to an employee’s NPS, which can be up to 10% of the salary (basic plus DA). If the contribution is made by the Central Government under Section 80CCD(2), the limit extends to 14% of the salary, surpassing the Rs. 1.5 lakh threshold set by Section 80CCE.
• Section 10 grants a tax exemption on a lump sum withdrawal of 60% of accrued NPS funds upon reaching 60 years of age or superannuation.

How to Open an NPS Account :

You have the option to open your NPS account online or offline.

Online : 

• Opening an National Pension System account online is a simple and hassle-free process. To initiate this, make sure your Aadhaar, PAN and mobile number are linked. The following steps illustrate the procedure:
• To get started, visit enps.nsdl.com .
• Register with Aadhaar or PAN, then click on “generate OTP” option.
• You will soon receive the OTP on your registered mobile number.
• Enter OTP and provide personal, banking and registration details.
• Upon successful application, you will be issued a Permanent Retirement Allocation Number (PRAN).
• Submit your photo and select the e-signature option. Then you will get the OTP on your mobile number.
• Enter the OTP and verify your signature and proceed with the payment.

Offline :

• A POP (Point of Presence) location can help you open an NPS account online. POPs can be any bank branch, post office, or financial institution authorized by the Pension Fund Regulatory and Development Authority (PFRDA).
• Submit your KYC documents like Aadhaar card and PAN card along with your signed application form.
• After the initial deposit, the POP Center will issue you a PRAN (Permanent Retirement Account Number).
• During this registration process, a one-time fee will be applicable.

Types of National Pension Scheme Accounts:

While assessing NPS accounts, the National Pension Scheme offers two categories – Tier I and Tier II.

Tier-I :

• NPS Tier-I is mandatory for enrollment in the NPS plan. You will need a Tier-I account to participate in the NPS.
• You can withdraw up to 60% of your corpus by the time you are 60 years old. The remaining 40% is used to purchase an annuity, ensuring that you receive a fixed amount each month.
• Tier-I NPS accounts are eligible for tax exemption benefits up to ₹2 lakh per annum under Sections 80C and 80CCD.
• Withdrawals from Tier-I are not permitted until you reach the age of 60, and even then, they are subject to conditions and limitations.
• You can start a Tier-I account with a minimum contribution of ₹500.

Tier-II:

• NPS Tier-II is a voluntary account. Please note that you will need a Tier-I account to enroll in the NPS Tier-II account.
• You can begin a Tier-II account by making a minimum contribution of ₹1,000.
• A Tier-II NPS account offers tax credits worth ₹1.5 lakh, but these are available only to government employees. Private employees and self-employed individuals are not eligible for tax credits under this scheme.
• Tier II does not impose any withdrawal limits or conditions. You can withdraw your funds at your discretion, without restrictions.

Withdrawal Process:

After Retirement:

• Withdrawal after retirement follows the following rules:
• If your total corpus is less than ₹5 lakh, you can withdraw the entire amount.
• If your total corpus is more than ₹5 lakh, you can withdraw up to 60%. The remaining funds will be utilized to purchase an annuity plan.

Partial Withdrawal:

• You can withdraw a partial amount from your NPS account in certain circumstances after fulfilling certain conditions. For example, partial withdrawals may be made for medical emergencies, for the construction or purchase of a home, further education of children or marriage.
• It is essential to maintain your account for a minimum of three years.
• You can withdraw 25% of the total corpus.
• You can only make withdrawals three times, with a minimum five-year interval between each withdrawal.

Voluntary Exit:

• You can voluntarily withdraw from the National Pension Scheme under the following terms and conditions.
• A voluntary exit is only allowed if you have maintained your account for at least ten years.
• If your total corpus is more than ₹2.5 lakh, you can withdraw 20% of your amount. The balance will be used to purchase the annual plan.
• If your corpus is less than ₹2.5 lakh, you have the option to withdraw the entire amount.

How to login to NPS Account:

• Step 1: You need a 12-digit Permanent Retirement Account Number (PRAN) to access your NPS account. Obtain your PRAN by submitting the required documents on the NSDL website or through the Point of Presence (POP) service offered.
• Step 2: Go to the NSDL CRA official portal.
• Step 3: Confirm your PRAN, date of birth, new password, password, and enter the captcha. Once you have entered all the details, click on the submit button.
• Step 4: An IPIN will be generated, which you can utilize to log into the NSDL portal.
• Step 5: Access the NSDL eNPS page and select ‘Login with PRAN/IPIN’.
• Step 6: On the subsequent page, utilize your PRAN and IPIN to access your NPS account.

Final Word:

The NPS scheme plays an important role in providing financial security after retirement. With additional tax advantages, fair return prospects and strictly managed savings services, it offers you a stable investment. It’s easy to open a National Pension Scheme account online or offline to kick-start your retirement age protection today! However, you can consider diversifying your pension investments beyond PPF, EPF and NPS to better meet your post-retirement financial needs.