Check What is National Pension Scheme? What are the tax benefits of investing in NPS? What accounts are available in NPS? How can one withdraw from NPS? For more about National Pension Scheme read the following content.
NPS is a voluntary, defined contribution retirement savings scheme. The National Pension Scheme has been designed to enable systematic savings during the assessee working life. This savings system is an attempt towards finding a sustainable solution to provide appropriate retirement income to every Indian citizen.
What is National Pension Scheme?
NPS is launched by Government of India, to bring attractive long term savings plan for retirement through safe and reasonable returns. National Pension Scheme is a readily available, tax-efficient, low-cost, flexible retirement savings account. Under the NPS Scheme, the taxpayer contributes to his retirement account, and also his company or organization can also co-contribute for the social security/welfare of the employee. NPS-National Pension Scheme is designed on Defined contribution basis wherein the employee (Assessee) contributes to his account, no defined benefit would be available at the time of exit from the scheme, and the accumulated wealth depends on the contributions made and the income generated from the investment of such wealth.
The vast the value of the contributions assessee made, the bigger the investments achieved, the longer the term over which the fund accumulates and the lower the charges deducted, the larger would be the eventual benefit of the accumulated pension wealth likely to be. Let us take a look at the following formula.
Contributions (plus) Investment Growth (minus) Charges = Accumulated Pension Wealth.
Who can join Nationa Pension Scheme-NPS?
NPS is a defined contribution based Pension Scheme launched by Central Government of India with the following purpose.
- To deliver an old age income.
- Fair market-based returns over long run.
- Extending old age protection coverage to all citizens.
Let us take a look, who can be eligible to join in an NPS Scheme in the following sections.
- A Taxpayer must be the citizen of India, either resident or NRI (Non-Resident of India).
- The Assessee whose age is between 18 years to 60 years on the date of his/her application to thePoints of Presence-POP/ POP-SP.
- The citizens of India can join NPS either as individuals or as a corporates (an employee-company group) subject to submission of all required information and KYC-Know your customer documentation.
- After attaining 60 years of age, the assessee will not be permitted to make further contributions to the NPS accounts.
Which entities can avail of the NPS?
Any citizen of India aged between 18 years to 60 years at the time of submitting their application with the Points of Presence or POP-SP, is eligible to avail of the NPS Scheme. The individuals include any of the following in the below section.
- Central Government Employees
- National Pension Scheme applies to all new employees of Central Govt service (except Armed Forces), and Central Autonomous Bodies were joining Government service from 1st January 2004 onwards.
- Any other government employee who is not mandatorily covered under National Pension Scheme can also subscribe to NPS under “All Citizen Model” through a Point of Presence – Service Provider (POP-SP).
- State Government Employees
- National Pension Scheme applies to all the employees of State Govt, State Autonomous Bodies joining services after the date of notification by the particular State Governments.
- Any other government employee who is not obligatory covered under National Pension Scheme can also subscribe to NPS under “All Citizen Model” through a Point of Presence – Service Provider (POP-SP).
- A Corporate (an employee & employer) would have the flexibility to decide investment choice either at employee level or the enterprise level centrally for all its underlying employees.
- The corporate or the employee can select any one of PFMs (Pension Fund Managers) – External website that opens in a new window available under “All Citizen Model” and also the percentage in which the funds are allocated to various asset classes.
- All citizens of India between the age of 18 and 60 years as on the date of submission of his / her application to Point of Presence (POP) / Point of Presence-Service Provider (POP-SP) can join National Pension Scheme.
- Unorganized Sector Workers – Swavalamban Yojana
- A citizen of India aged between 18 years to 60 years as on the date of submission of his / her application, who belongs to the unorganized sector can open NPS -Swavalamban account. The assessee of NPS -can open a new account at Swavalamban- External website.
Contributions made by Non-Resident are subject to regulatory requirements as prescribed by RBI and FEMA (Foreign Exchange Management Act) from time to time. If the taxpayer’s citizenship status changes, his/ her, NPS account would be closed.
How to open an NSP Account?
NPS-National Pension Scheme is distributed through authorized entities called POP’s (Points of Presence), and almost all the banks (both private and public sector) are enrolled in acting as POP (Point of Presence) under NPS apart from several other financial institutions. In order to invest in NPS, the assessee will be required to open an NPS account through the Point of Presence (POP) and who will assist the subscriber in opening the account including the filling up of necessary forms, providing the information about NPS and any other relevant information in this regard.
NPS Tax Benefits
Let’s have a look at few of the benefits of the NPS scheme are:
Tax benefit to employee
Individuals who are a salaried employee and contributing to NPS would enjoy tax benefits on their contributions as well as their employer’s ( organization) contribution as follows.
- Employee’s contribution: Eligible for tax deduction up to 10% of Salary (Basic + Dearness Allowance) under Section 80 CCD(1) within the overall ceiling of Rs. 1,00,000/- under Section 80CCE.
- Employer’s contribution: The employee is eligible for tax deduction up to 10% of Salary (Basic + Deaness Allowance) contributed by the employer under Section 80CCC(2) over and above the limit of Rs. 1,00,000/- provided under Section 80 CCE.
Tax benefit for self-employed
- Self-employed are eligible for tax deduction up to 10 % of gross income under Section 80CCD(1) within the overall ceiling of Rs. 1,00,000/- under Section 80CCE.
Benefits of National Pension Scheme
- NPS is transparent and a cost efficient system wherein the pension contributions are invested in the pension fund schemes and the employee will be able to know the value of the investment on day to day basis.
- All the subscriber has to do, is to open an account with his/her nodal office and get a PRAN number (Permanent Retirement Account Number).
- The individual employee is identified by a unique number and has a different PRAN, which is portable, i.e., will remain same even if an employee gets transferred to any other office.
- NPS is regulated by PFRDA-Pension Fund Regulatory and Development Authority- External website that opens in a new window, with transparent investment norms and regular monitoring and performance review of fund managers by NPS Trust- External website that opens in a new window.
How to withdraw the Tax benefits under NPS?
The assessee wishing to exit from National Pension Scheme has to submit a withdrawal application form to the concerned POP along with the documents specified for withdrawal of the benefits and the Points of Presence, in turn, would authenticate the documents and forwards them to CRA M/s NSDL. Community Reinvestment Act, in turn, would register your claim and forward you the necessary application form along with the procedure to be followed and documents that need to be submitted. Once the documents are received, CRA processes the application and settles the account.
Documents needed for NPS withdrawal
Following documents are required to be submitted along with the withdrawal forms to settle the claims:
- Completely filled in subscriber registration form.
- PRAN card in original.
- Attested copy of Proof of Identity likeAadhar Card, Passport, Valid Driving License, PAN Card, Voter ID Card, etc.).
- Attested copy of Proof of Address (e. g. Driving License, Passport, Aadhar Card, Voter ID Card, etc.).
- Canceled Cheque (containing Subscriber Name, Bank Account Number, and IFSC Code) or Bank Certificate Containing Name, Bank Account Number and IFSC code, for direct credit or electronic transfer.
Charges Under NPS Scheme
The employer pays all the charges associated to Tier I account including Annual PRA Maintenance charge. In the case of Tier II account, activation charge and transaction charges are paid by the subscriber.
The POP charges and the CRA charges are given in the table below:
|Intermediary||Charge head||Service charges||Method of Deduction|
|CRA||PRA Opening charges.||Rs. 50/-||Through cancellation of units at the end of each quarter.|
|Annual PRA Maintenance cost per account.||Rs. 190/-|
|Charge per transaction.||Rs. 4/-|
(Maximum Permissible charge for each user)
|Initial subscriber registration.||Rs. 100/-||To be collected upfront|
|Initial contribution upload.||0.25% of the initial contribution amount from assessee subject to a minimum of Rs.20 and a maximum of Rs. 25,000/-.|
|Any subsequent transaction involving contribution upload.||0.25% of the sum accepted by the NPS user, subject to the minimum of Rs. 20/- and a maximum of Rs. 25,000/-.|
|Any other transaction not involving a contribution from subscriber.||Rs. 20/-.|
Features of the retirement account under NPS
The following are the most important features of the retirement account under National Pension Scheme.
- Every individual taxpayer is issued with a PRAN (Permanent Retirement Account Number) card and has a 12 digit unique number. In a case of the card being stolen or lost, the same can be reprinted with additional charges.
- Under National Pension Scheme account, two sub-accounts such as Tier I and Tier II are provided. Tier I account is mandatory, and the subscriber has the option to opt for Tier II account opening and operation.
- The salient features of these sub-accounts are mentioned below.
- Tier-I account: This is a non-withdrawable retirement account which can be withdrawn only upon meeting the exit conditions prescribed under NPS.
- Tier-II account: This is a voluntary savings facility available as an add-on to any Tier-1 account holder. Subscribers will be free to withdraw their savings from this account whenever they wish.