Table of Content:
- What is the National Pension Scheme?
- What are NPS Benefits?
- What are NPS Scheme Tax Benefits?
- What are The Eligibility Criteria for NPS Scheme?
- Steps to Open an NPS Account Online
- How to Login to an NPS Account?
The National Pension Scheme (now known as National Pension System) is a retirement-saving scheme launched by the Government of India that enables employees across the public, private, and unorganized sectors to take futuristic decisions through systematic savings during their work tenure.
NPS was initially introduced for Indian government employees in 2004 and was later made available to all in 2009. Continue reading this informative article to learn more about the NPS scheme in India.
What is the National Pension Scheme?
The Pension Fund Regulatory and Development Authority (PFRDA) governs the pension cum savings scheme. The Central Recordkeeping Agency has built an internal system with the aim of protecting the interests of NPS users.
The NPS scheme aims to instill in citizens the habit of saving for retirement. It is an attempt to find a long-term solution to the problem of providing adequate retirement income to every Indian citizen. Individual savings are pooled in a pension fund and invested in diversified portfolios such as Government Bonds, Bills, and Shares by PFRDA-regulated professional fund managers as per approved investment guidelines. These contributions grow over time, based on the returns on the investment.
During the NPS scheme exit, the accumulated pension fund is eligible to purchase a life annuity apart from withdrawing a part of the entire pension wealth.
People belonging to the age group of 18–70 years are eligible to open an NPS account and receive benefits from it. The ones interested in opening an NPS account should have a PAN card, an Aadhaar card, and bank details for which KYC will be done.
What are NPS Benefits?
This scheme is best suited to accumulate funds over the long term and have a financially secure retirement. The amount invested in the NPS scheme is invested in equities. It provides higher returns than traditional tax-saving investments.
2. NPS Tax Benefit
Under Section 80C of the Income Tax Act, the contribution made to the National Pension System up to the maximum limit of Rs 1.5 lakhs is eligible for exemption. The NPS contributed by the employer, and the employee is eligible for tax exemption.
3. Premature Withdrawals & Exit Rules of the NPS Scheme
Partial withdrawals are allowed three years after opening the NPS account. The premature withdrawal provision applies in specific conditions, such as a child's education, home buying, or a medical emergency. The withdrawal can be made thrice in five years during the entire tenure.
Also, these rules apply to Tier I account holders only.
4. After 60 Withdrawals Rules
One cannot withdraw the entire accumulated amount from the account after retirement. It is mandatory in the National Pension System to keep aside a minimum of 40% of the accumulated amount in order to receive a regular annuity from the PFRDA registered firm. The remaining 60% of the fund will be tax-free.
5. Flexible Contribution & Promotes Complete Transparency
The NPS investment can be made anytime during the financial year, and one can change the amount to invest every year. Moreover, the scheme offers complete flexibility by choosing the contribution options. Since PFRDA regulates the NPS scheme, it meets the monitoring and transparency investment norms and maintains the transparency and reliability of the applicant.
What are NPS Scheme Tax Benefits?
As mentioned above, the National Pension System( NPS Scheme) enables tax exemption under Section 80 C of the Income Tax Act on the amount invested towards the scheme upto Rs 1.5 lakh.
Section 80CCD (1): It is a part of self-contribution. The maximum deduction is upto 10% of the salary and can be claimed for tax exemption. For self-employed taxpayers, the limit is 20% of the gross income.
80CCD (2): It is a part of the contribution made by employers to the National Pension Scheme. The lowest of the following is the maximum amount eligible for the tax exemption:
1. Actual NPS contribution by the employer
2. 10% of Basic + Dearness Allowance
3. Gross total income
Under Section 80 CCD (1B), one can also claim the additional self-contribution of upto Rs 50000 as an NPS tax benefit.
What are The Eligibility Criteria for NPS Scheme?
- Any Indian citizen can open an NPS account.
- The minimum age for opening an account is 18 years old.
- You should be KYC-compliant.
Steps to Open an NPS Account Online
One can open an NPS account either online or offline. In order to open an NPS account online, it is important to link the account to the PAN, Aadhaar, and mobile number. Below you will find the steps to open an account.
Step 1: Navigate to the website.
Step 2: Select the type of subscriber from the options of "corporate subscriber" and "individual subscriber."
Step 3: Opt for the appropriate residential status—Indian citizen or NRI.
Step 4: Mention your PAN details and select a suitable POP and bank.
Step 5: Select the registration and choose the option to "register with Aadhaar."
Step 6: Mention your Aadhaar number and click "generate OTP." You will receive an OTP on the registered mobile number.
Step 7: Enter the OTP and other information, like bank and nomination details.
Step 8: You will receive your Permanent Retirement Allotment Number after submitting your NPS account application.
Step 9: After submitting the e-signature and photograph, you will receive an OTP.
Step 10: Mention the OTP to verify the signature and make payment.
Step 11: Once redirected to the payment page, your permanent retirement account number will be generated once you make the payment.
How to Login to an NPS Account?
Step 1: If you want to login to an NPS account, you should have a 12-digit Permanent Retirement Account Number (PRAN). Submit the necessary details on the NSDL portal or at the Point of Presence service provided to avail of PRAN.
Step 2: Visit the NSDL CRA website.
- Enter the PRAN, DOB, and new password.
- Confirm the password.
- Mention the captcha code.
- Click on 'Submit.'
Step 4: The IPIN will be generated, and you can use it to login to the NSDL website.
Step 5: Login to the NSDL eNPS and select "Login with PRAN/IPIN.
Step 6: A new window will open where you must use your PRAN and IPIN to sign into your NPS account.