Corpus creation for one’s retirement life is an essential aspect of financial planning. Individuals can fulfil their expenditure against their income and plan their post-retirement life with clarity.
The Indian Government has introduced schemes like the National Pension System. It covers all citizens of India, even from the unorganised sectors. NPS is a defined, voluntary contribution scheme that is market-linked and managed by professional fund managers.
On retirement, exit or superannuation, at least 40% of the contribution is utilised for the procurement of lifetime pension via the purchase of an annuity. The remaining funds are paid to the subscriber in a lump sum.
It allows individuals to make investments via either of the following two accounts. It is followed by the generation of a unique Permanent Retirement Account Number or PRAN. Fund management and contribution is done via PRAN.
- Tier-I is a pension account, withdrawals from it are subject to specific restrictions. A minimum deposit of Rs. 500 is required.
- Tier-II accounts are voluntary accounts providing liquidity of funds via investments and withdrawals. The minimum deposit for Tier II account is Rs. 250
Investments in Tier-II accounts are allowed only when an active Tier I account in the subscriber’s name exists. An Individual can subscribe to this scheme with PFRDA-appointed intermediaries via the two accounts mentioned above-
- Trustee banks
- CRA or Central Recordkeeping Agency
- NPS trust
- POP or Points of Presence
- Annuity Service Providers.
1.Subscribers have the flexibility to opt for either of the following two investment options-
- Auto choice-As a default option funds are managed automatically by an appointed fund manager as per an investor’s age profile.
- Active choice-Individuals are free to decide among available asset classes in which they want to invest. Allocation of different percentages of contributed funds can be invested in with a maximum cap of 50% for Asset Class E or Equities, Class C-Corporate Debt Securities and Class G-Government Securities.
Switching the investment options and the fund manager is allowed subject to conditions.
2.There is an option to withdraw contributions giving individuals partial accessibility to their funds saved over the years and allowing them to meet financial needs before retirement during emergencies. Withdrawals of Tier I scheme up to a maximum limit of 25% is allowed, subject to the following:
- Contributions up to a minimum of 10 years must be made.
- There should be a minimum gap of 5 years between two consecutive withdrawals.
3.Income tax benefits
|Applicable Sections under the Income Tax Act 1961||Tax Benefits|
|U/S 80CCD (1)||Own contribution of a subscriber towards Tier I investments tax deductible within the total ceiling of Rs.1.5 lakh u/s 80C.|
|U/S 80CCD 1(B)||In addition to the above, up to Rs.50,000 as deductions allowed towards Tier I contributions.|
|U/S 80CCD (2)||Contribution of an employer towards Tier I investments up to 14% for central government contributions and up to 10% for others. This deduction is over and above the deduction limit applicable u/s 80C.|
Other tax benefits on NPS Tier I –
- Up to 25% of Tier I contributions withdrawn by a subscriber are exempt from tax.
- Annuity purchase from National Pension Scheme corpus is tax-exempt. Income generated from such annuity in the following years is taxable.
Lump sum withdrawal of up to 40% of an NPS corpus after a subscriber turns 60 is exempt from tax. If one utilises the remaining 60% of funds for annuity purchase, the entire corpus will be tax-free. Income generated from the annuity will be taxable.
National Pension System aims to provide retirement benefits to all citizens of India. Regulated and administered by the PFRDA or Pension Fund Regulatory and Development Authority under the PFRDA Act 2013.
Registration can be done through the online platform, e-NPS by the following steps mentioned below.
- Go to the e-NPS portal available at the official website of the National Pension System.
- Choose subscriber type from ‘Individual Subscriber’ and ‘Corporate Subscriber’.
- Choose residential status- ‘Citizen of India’ or ‘NRI’.
- Opt for either Tier-I account type or both accounts, choice of the former is mandatory for long-term savings.
- Enter PAN details and select a suitable bank or POP. Choose a POP with whom there is an existing relationship such as a savings/current/De-mat/account for KYC verification as the chosen POP will do it.
- Upload the scanned copy of PAN card and a cancelled cheque. The image format should be in .jpg, .jpeg or .png format with a file size of 4KB to 2MB.
- Upload scanned photograph and signature in the same format and size as above.
- Proceed to pay the required charges via net Banking.
- After payment, a Permanent Retirement Account Number will be generated.
NRIs need to complete a few additional steps:
- Choose the status of bank account- repatriable or non-repatriable.
- Provide the details of NRO or NRE bank account and passport’s scanned copy.
- Choose a suitable communication address-permanent or overseas address. Communication to the latter attracts additional charges.
Once the PRAN is allotted, proceed with either of the following for authentication.
- On the E-sign/Print & Courier page, choose the E-sign option.
- Authenticate with OTP sent to the mobile number registered with your Aadhaar card.
- After Aadhaar authentication, the registration form is signed successfully, physical copy need not be sent.
Service charges are applicable for e-signing registration form. Another option is via print and courier-
- Select the Print & Courier option on the initial page.
- Print the form available on the page, paste photograph and sign in the dedicated signature block.
- Send the form within 30 days of PRAN allotment to the address given below. Not doing so will result in temporary freezing of the PRAN-
Central Recordkeeping Agency (e-NPS)
NSDL e-Governance Infrastructure Limited,
1st Floor, Times Tower, Kamala Mills Compound, Senapati Bapat Marg,
Lower Parel, Mumbai – 400 013
Who can Benefit?
Depending upon the models–
Government sector model
The pension system is applicable for both central and state govt. employees (except the govt of West Bengal), except for those employed with the armed forces. A contribution of 10% of a government employee’s salary goes to the NPS with an equal contribution by the government. Central Government employees receive a contribution of 14% from the government.
The corporate model
Corporate employees enrolled by their employers can utilise the benefits of the pension system. They must be Indian citizens between the age of 18 and 60 years fulfilling the KYC requirements. Applicable if-
- Registered as per the Companies Act.
- Registered under different Co-Operative Acts.
- Identified as Central or Public Sector Enterprises.
- Identified as a proprietary concern.
- Registered as partnership firms or LLPs.
- Incorporated vide order from a State or Central Government.
- Identified as a society or a trust.
All citizens model
All citizens of India meeting the following eligibility criteria can voluntarily opt for enrolment and contribute to the NPS.
- The age should be between 18 and 60 years on the date when applying with a POP service provider.
- Fulfil the KYC requirements as required in the Form and submit all necessary documents.