All about National Pension Scheme (NPS): Additional deduction of Rs 50,000/-

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All about National Pension Scheme (NPS): Additional deduction of Rs 50,000/-

Indian doesn’t have a social security system. Saving by self for retirement is the only. To ensure the social security, Government has launched a National Pension Scheme (NPS) which is largely focused on one’s retirement.

Under NPS Scheme, 60% of the maturity corpus can be withdrawn as a lump sum on maturity on completion of the age of 60 years. Balance has to be compulsorily annuitized, i.e., balance is used to fund the annuity (pension) after retirement. This annuity is now not taxable in the year of receipt as income from other sources.

There are following benefits of NPS:

  1. Portability – NPS does not have any Geographical restrictions. An account opened in any state of India can be accessed from all over the country. NPS corporate account is transferable between employers.
  2. Flexible – NPS gives the subscriber the flexibility to choose the Fund Manager, Investment Option, Annuity Service Provider, etc. This gives you the control over your investments.
  3. Economical – NPS is currently one of the cheapest investment products available.
  4. Voluntary – NPS is voluntary product for citizens of India. Only for central and state Government employees, NPS is compulsorily under the fixed contribution scheme.

Two Types of NPS and Tiers in NPS A/c:

NPS accounts are primarily of two types

  1. Individual NPS account, commonly referred to as all Citizen Model and
  2. Corporate NPS account.

In an Individual NPS account, the subscriber (Account holder) is the only contributor. All selections pertaining to Scheme preference, Investment choice, Annuity Service Provider, etc. are done by the subscriber alone. Any citizen of India can voluntarily choose to open an Individual NPS account to avail tax benefits on investments and to ensure a fixed income post retirement.

When a corporate chooses to offer NPS scheme to their employees as a retirement benefit plan, this is a Corporate NPS account. Any employee of a Company that is registered with a CRA for NPS can avail Corporate NPS benefits. In such an account, the employee and the employer, both are contributing to the same NPS account. The employer makes a certain contribution to the employer’s NPS account on his/her behalf. This employer contribution should not exceed 10% of the employee’s Basic + DA. The employee too makes certain contribution to the same account. This ensures higher amount being contributed in the account and also gives better tax benefits to the employee.

Subscribers have the option to open two types of NPS Accounts under the same Permanent Retirement Account Number (PRAN). These are called tiers in NPS. Let us know about it:

  1. Tier I NPS A/C:
    Contributions done to this account are eligible for additional tax deduction benefit of up to Rs. 50,000/- under section 80CCD (1B), over and above Rs.1,50,000/- u/s 80C. Withdrawals are restricted and subject to terms and conditions.
  2. Tier II NPS A/c:
    Subscribers can invest an additional amount in Tier II NPS Account. Subscriber is free to withdraw his entire accrued corpus under Tier II at any point of time. In case subscriber has not contributed even the initial contribution towards Tier II a/c, it will be automatically deactivated as per process. No tax benefits are available in this account.

Let us know about the benefits of investing in NPS A/c:

NPS is one of the ideal solutions for retirement planning. It provides old age income with reasonable market based returns.

It is based on unique Permanent Retirement Account Number (PRAN) which is allotted to every subscriber for NPS.

  1. Regulated: NPS is regulated by PFRDA (Pension fund regulator under Govt. of India)
  2. Transparency: NPS account can be accessed online to make contributions and track investments.
  3. Flexibility: The subscriber has the flexibility to choose the investment option, fund manager, Annuity Service Provider, Annuity Option.
  4. Control: The subscriber has the control of his/her investments. This ensures that you can take calculated risks and ensure higher returns.
  5. Long term returns: NPS is a long term investment plan. The minimum lock in period for NPS is 10 years. Hence the subscriber gets the benefit of compounding which ensures higher corpus on maturity.
  6. Online presence: You can register and access your NPS accounts online making it very convinient to access and manage. Multiple features are made available online and also on the NPS application.

The biggest advantage of investment in NPS is the Tax Benefits it offers. NPS investments offer additional tax benefits over and above the limit of Rs. 1.50 Lakh u/s 80C.

This ensures a yearly (immediate) saving.

Following is a short compilation of the tax benefits on NPS:

 

Section Description
80 CCD(1) Individual Subscriber’s contribution can clain tax benefit U/s 80 CCD(1) with in the overall ceiling of Rs. 1.5 lakh U/s 80 CCE
80 CCD(1B) Individual Subscriber’s contribution upto Rs. 50,000 is eligible for tax exemption U/s 80 CCD(1B)
80 CCD(2)

Corporate Contribution (Contribution made by the employer on behalf of the employee) made upto 10% of the employee’s basic salary is eligible for tax exemption U/s 80 CCD(2)

 

Investment Option:

Subscribers have the option to select allocation pattern for their investment across various asset classes.

Active Choice: This option allows the subscriber the freedom to design the portfolio among 4     asset classes as below:

  • Equity (E): This is a ‘High risk – High Return’ option as the funds are invested in equity Subscriber can choose to invest up to 75% in this class
  • Corporate Bonds (C): Funds are invested in fixed income bearing instruments which offer medium returns
  • Government Securities (G): Funds are invested only in Government Securities
  • Alternate Assets (A): Funds are invested in real estate bonds and infrastructure projects. Maximum capping is 5% investment since this is a very high risk investment.

Auto Choice- Life Cycle Fund : In case ‘Active Choice’ as described above is not selected, the contribution funds will be invested in a pre-defined proportion depending on the age of the subscriber. The exposure will be higher in equity at a younger age and will be moderated progressively to get a balance among high, medium and low risk investment. For example, allocation in equity till the age of 36 years is 50% in “E” , 30% in “C” and 20% in “G” asset class. After the age of 36, asset allocation starts decreasing from “E” and “C” and increases in “G” till it reaches 10% in “E” & “C” and 80% in “G” asset class.

Agencies involved in the NPS Management are as under:

  1. Pension Fund Regulatory and Development Authority (PFRDA) is a pension regulator which was established by the Government of India on August 23, 2003. PFRDA is authorized by Ministry of Finance, Department of Financial Services. PFRDA promotes old age income security by establishing, developing and regulating pension funds and protects the interests of subscribers in schemes of pension funds and related matters.
  2. Central Recordkeeping Agency (CRA) as the sector regulator PFRDA has appointed KFin Technologies Private Limited (KFintech) & National Securities Depository Limited (NSDL) to offer NPS.
  3. Point Of Presence (POP) – The first point of interaction between the subscriber and the NPS architecture. POP shall facilitate the subscriber registration and submission of contributions. HDFC Bank Ltd. is registered with PFRDA as a Point of Presence (POP).

The contributions invested in NPS are presently operated by 8 Pension Fund Managers (PFM) appointed by PFRDA. The Subscriber can choose any one of the below given entities:

  • HDFC Pension Management Company Limited
  • UTI Retirement Solutions Limited
  • Kotak Mahindra Pension Fund Limited
  • LIC Pension Fund Ltd
  • SBI Pension Funds Private Limited
  • ICICI Prudential Pension Funds Management Company Limited
  • Birla Sunlife Pension Management Limited New

Annuity Service Providers: As already mentioned, person have to invest 40% amount in an annuity product only at the time of withdrawals. After completion of 60 years of age, the subscriber will have options to start Annuity. Below are Life Insurance Companies registered with PFRDA that offer Annuity:

  1. HDFC Standard Life Insurance Company Limited
  2. Star Union Dai-Chi Life Insurance Company Limited
  3. Life Insurance Corporation of India Limited
  4. ICICI Prudential Life Insurance Company Limited
  5. SBI Life Insurance Company Limited

Subscriber can enrol for NPS through the online application mode from the convenience of his home / office. The prime objective of the scheme is to provide all citizens of India with an attractive long term savings avenue to plan for retirement through safe and reasonable market based returns. The account can be opened by all Indian Citizens between 18 to 60 Years.

How to open NPS Account in an online Mode:

Following is a step-wise guide for opening the NPS A/c:

  1. Subscriber can enrol for NPS by clicking on ‘Apply Now’ option under NPS (National Pension System)
  2. Subscriber will get online form, which needs to be filled with mandatory fields.
  3. Receipt number for subscriber registration (account opening) will be generated. There will be provision to complete the registration (account opening) later based on receipt number search.
  4. Subscriber’s e-KYC will be done through Aadhaar (OTP based authentication).
  5. Subscriber enters remaining details like Bank details, scheme details, nominee details etc.
  6. Subscriber needs to upload photograph and signature (Cheque and PAN for Tier II).
  7. Subscriber will enter the contribution amount (this is the amount subscriber wants to invest in NPS) and click for payment.
  8. Subscriber will be directed to online payment platform wherein subscriber will complete the payment through HDFC Bank NetBanking.
  9. On successful payment, PRAN will be allotted to the subscriber and PDF form will be generated based on data given. This can be saved for reference and need not be sent separately (This is only applicable for Aadhaar based NPS account opening).
NPS Account opening Contribution:
Particulars Tier I Tier II
Minimum Contribution required at the time of account opening Rs.500/- Rs.1000/-
Minimum Subsequent Contribution amount required Rs.500/- Rs. 250/-
Minimum contribution required per year Rs.1000/- NIL
Minimum number of contributions required in a year 1 NIL

Intermediary

Charge Head Service Charges*
Charges by Bank – Point Of Presence – POP (Maximum  Permissible Charge for each Subscription) Initial Subscriber Registration  Rs. 200/-
Initial Contribution 0.25% of the the initial contribution amount from subscriber subject to a minimum of Rs.20/- and a maximum of Rs.25,000/-
Any subsequent Contribution
All Non Financial Transactions Rs.20/-
e-NPS (for subsequent contributions) 0.10% of the contribution. Min. Rs. 10/- & Max. Rs. 10,000/- (Only for NPS- All Citizen & Tier- II accounts)
Charges by Bank – Point Of Presence – POP (Through cancellation of Units) Persistency Rs. 50/- per annum (Only for NPS- All Citizen Model)
M/s NSDL e-Governance Infrastructure Ltd (1st CRA)  Permanent Retirement Account Number (PRAN) Opening Charges Rs.40/-
PRAN Annual Maintainance Charges Rs. 95/-
Charge per transaction  Rs. 3.75/-
M/s Karvy Computershare Pvt Ltd (2nd CRA)  PRA Opening Charges  Rs. 39.36/-
Annual PRAN Maintainance cost per account Rs. 57.63/-
Charge per transaction  Rs. 3.36/-
Fund Management Charges (FMC)

0.01% p.a. of total accumulated amount

 

Note : The charges are subject to revision by Regulators. Taxes as applicable.

NPS Facilities:

There are various other facilities which are offered by NPS as under:

NPS on mobile Application:

 A mobile app for NPS Subscribers called ‘NPS by NSDL e-Gov’ is available. The Subscriber can now view their NPS account, scheme holdings, latest Net Asset Value (NAV) and the total value of the schemes through this app. Subscribers can view the transaction statement for a particular financial year, as well as details of last five contributions.

Subscriber can switch among fund managers, asset classes and change the allocation ratio.

Facilities available in Subscriber’s login :

  • View profile details
  • Transaction Statement
  • Statement of Holding
  • Contribution Statement
  • Transaction through OTP authentication
  • Contribution
  • Tier II withdrawal
  • Scheme Preference change
  • One Way Switch (from Tier II to Tier I)
  • Reprint of PRAN Card
  • Change of contact details
  • Change of address using Aadhaar authentication
  • Grievance facility
  • Various Views
  • E-PRAN view and download
  • NAV details
  • Tier II details
  • POP (Point Of Presence) details
  • Facilities outside login:
  • Contribution
  • Tier II activation
  • IPIN reset

Address change using Aadhaar authentication: An NPS subscriber can now update or modify his address on his own using Aadhaar-based authentication. Once the subscriber logs in, he just has to click on “Update Address” by providing the Aadhaar number and then click on the ‘Submit’ button after which an OTP (one-time password) will be sent to his mobile. Once he authenticates by submitting the OTP, the address details from the Aadhaar system will be fetched and updated in the system. The Subscriber will then be able to update both, permanent, as well as correspondence address.

Online IPIN generation: Subscribers can access the system immediately after registration. They will be able to generate IPIN instantly and access their NPS account.

Online Contribution: Subscriber, with IPIN credentials, can login and click on the ‘Contribution’ button wherein contribution can be made.

 

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