The National Pension Scheme (NPS) is a retirement plan that enables individuals to save for a secure income after retirement. It operates under the supervision of the PFRDA (Pension Fund Regulatory and Development Authority) and falls under the purview of the Government of India.
NPS is considered as a good option for retirement planning. It offers a combination of tax benefits, portability, flexibility, and a guaranteed minimum pension. If you are looking for a way to save for your retirement, the NPS is a good option to consider.
Types of accounts:
There are two types of NPS accounts – Tier I and Tier II. Tier I NPS account, which is mandatory, offers tax benefits. Subscribers need a minimum of Rs 500 for starting the pension account. The minimum total contribution in a year is Rs 1,000.
Tier II NPS accounts do not offer tax benefits. It is an investment account. The optional account requires a minimum contribution of Rs 1,000 opening the account. The corpus can be withdrawn anytime in a Tier II account.
Eligibility criteria for NPS accounts:
The subscriber should be an Indian citizen. Non-resident Indians can also apply.
The account holder must be within the age bracket of 18-70 years.
Tax benefits:
With regards to employee contribution, NPS Tier I account offers tax deduction u/s 80CCD (1B) on contribution of Rs 50,000. Subscribers can also get tax relief u/s 80CCE for investments (10 percent of Basic & Dearness Allowance) within an overall limit of Rs 1.50 lakh.
If we look at employer contribution, a Tier I account offers tax benefit of up to 10 percent of salary (Basic + DA) u/s 80CCD (2) subject to monetary ceiling of Rs 7.5 lakh (includes Superannuation, Provident Fund etc.)
How to exit NPS Tier I account:
If the subscriber is below 60 years (after completion of five years of account):
Twenty percent of the corpus can be withdrawn in lump sum and the remaining will be invested in an Annuity Scheme. If the total corpus is equal or less than Rs 2.50 lakh, then the complete amount can be withdrawn
If the subscriber has attained the age of 60 years:
At least 40 percent of the corpus must be invested in an Annuity Scheme. The remaining amount can be withdrawn in portions/lump sum any time up to the age of 75 years. The amount is tax-free.
If the total corpus is less than or equal to Rs 5 lakh, then the entire amount can be withdrawn.
NPS platform offers different models to suit the different segments of users. These include :
The Government model for the Central and State Government Employees
NPS is mandatorily applicable on Central Government employees (except Armed Forces) recruited on or after January 01, 2004. Subsequently, State Governments, excluding a few, also adopted NPS for their employees. Govt. employees make a monthly contribution at the rate of 10% of their salary and a matching contribution is paid by the Govt.
For central Govt. employees, the employer’s contribution rate has been enhanced to 14% w.e.f. April 01, 2019.
The Corporate Model:
Companies can adopt NPS for their employees with contribution rates as per the employment conditions.
All Citizens Model:
The All Citizens Model of the NPS allows all citizens of India aged between 18 – 65 years to join NPS on a voluntary basis.
How To Open NPS Account?
There are two ways to open the NPS account – online and offline.
For those joining the Central Government / state government / CAB / SAB sectors, the process is slightly different. You have to approach your HR department / Pay and Accounts Office (the nodal office for NPS) Government sector employees can also open account through eNPS. All formalities must be completed and routed through the nodal office.
How to open an NPS account online?
Visit the eNPS portal of the CRA of your choice to open an NPS account online. NPS account can be opened through the DigiLocker facility.
NPS Offline
For registration, you can visit your nearest PoP-SP (Point Of Presence – Service Provider).
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