National Pension Scheme - A complete Guide

In This Article

What kind of instrument is the National Pension Scheme?
What is the mechanism of the National Pension Scheme?
How do we earn from National Pension Scheme?
Who all can invest in National Pension Scheme?
Who regulates National Pension Scheme?
How can we enroll in the National Pension Scheme?
Documents required to open an NPS account?
What are the investment options in NPS?
What are the tax benefits under NPS?
When can A subscriber exit from National Pension Scheme?
What is the withdrawal process in NPS?
How can I withdraw my NPS corpus?
What documents do I require at the time of withdrawal of my NPS corpus?

The National Pension Scheme (NPS), regulated by Pension Fund Regulatory and Development Authority (PFRDA) was brought up by an act of parliament in 2004, by implying to all the government employees who joined after 1st January 2004, but is 2009 it made available to all the citizens of India aging between 18 to 65 years of age.

What kind of instrument is the National Pension Scheme?

It is the same instrument like PPF (Pension Provident Fund), EPF (Employees Provident Fund), Senior Citizen Savings Scheme, marked as EEE (Exempt-Exempt-Exempt) instrument because it manages to escape the whole corpus from tax at the time of maturity and the entire withdrawal amount is tax-free.

It is a Quasi-EET instrument where 40% of the corpus is tax-free whereas 60% is taxable out of which 40% is made compulsory for purchasing an annuity after which it became tax-free and the final remaining 20% corpus is being taxed as per the tax slabs at the time of withdrawal.

What is the mechanism of the National Pension Scheme?

Undoubtedly, NPS is a long term investment plan which helps one getting exemptions in tax and a valued amount of return from the investment. Which provides access to TIER I - Pension Account and TIER II - Savings Account.

Here you get Fund Managers (6) and multiple investment options (3) from which you can choose your mode of investment or “ACTIVE CHOICE” or if you don’t want to exercise this then you can just select the “AUTO CHOICE” option.

How do we earn from National Pension Scheme?

The fund one invests in this scheme is a mix of equity and debt investment. The final amount totally depends on the market-based investment schemes through which we can require a percentage of interest.

The broader objectives of the NPS scheme are:

Firstly, it provides old age security to old people in form of income.

Secondly, it gives market-based returns for long term investments.

Who all can invest in National Pension Scheme?

At the time of the launch of NPS, it entertained only government employees for the subscription of this scheme but later on it was made accessible to all citizens of India even NRI’s can make an investment in National Pension Scheme.

Who regulates National Pension Scheme?

PFRDA regulates National Pension Scheme and PMS’s (Pension Fund Managers) manages the money.

These are the companies authorized by the PFRDA in order to manage the wealth of the beneficiaries of the scheme. At present there are eight such PM’s, they are:

1. SBI Pension Fund

2. LIC Pension Fund

3. ICICI Prudential Pension Fund

4. Reliance Capital Pension Fund

5. HDFC Pension Management Company

6. UTI Retirement Solutions Pension Fund

7. Kotak Mahindra Pension Fund

8. Birla Pension Fund

How can we enroll in the National Pension Scheme?

For enrolling in NPS we need to register ourselves, which can be done in two ways either physically or through online medium.

Firstly, we need to get an application form from Point Of Presence-Service Provider (POPSP) or can download it from the NDSL website (npscra.nsdl.co.in). Fill up the form and submit it in any nodal office of any POP-SP.

Physical Mode: For this, you need to visit any POP (Point Of Presence) service providers near you. These are the banks, post offices, and other non-financial institutions. You can find your POP through this link: https://www.npscra.nsdl.co.in. After searching your POP you need to submit the KYC forms along with the NPS registration form to POP and then you will get your PRAN. This is a 12 digit unique and accessible number all over India.

Online Mode: For registering through online mode you must have an active Net banking account. Firstly, you need to visit the eNPS website (to visit the e-NPS website). After opening, you will click on the National Pension Scheme and then you will get three options namely :

Registration
Contribution
Tier-II activation

You need to click on registration and then choose appropriate options further. And then enter your PAN number and select your BANK/POP. After clicking on continue, you will get a registration form, fill the form online, attach the required documents, and then submit.

After this, your PRAN will generate and from here you can start investing in NPS.

Documents required to open an NPS account?

Documents should be the proof of your identity and your residence they are :

Passport
Aadhar card
Ration card
Voter card
Driving License
Electricity bill
Water bill

What are the investment options in NPS?

The money we contribute to NPS is invested in 4 asset classes which are ECGA : ( ASSET MIX )

E : Equity ( i.e., High Risk — High Returns )

C : Corporate Bonds ( Moderate Risk — Moderate Risk )

G : Government Bonds ( i.e., Low Risk — Low Returns )

A : Alternative Assets (like REITs- Real Estate Investment Trust & InvIT- Infrastructural Investment Trusts ) ( i.e., Very High Risk — Moderate Return )

What are the tax benefits under NPS?

Tax benefit available to an individual who is a subscriber of the NPS can straightaway claim tax deduction unto 10% of the gross income under section 80CCD(1) and for the private sector or to the self-employed subscribers it is 20% of the total income in the financial year but both of this has to be under a ceiling of Rs. 1.5Lac of section 80C to section 80 CCE of Income Tax Act.

The employer’s contribution towards the employees NPS, 10% is exempted from the tax under section 80CCD(2).

Irrespective of this an individual can claim an additional deduction of Rs. 50000 under section 80CCD(1B), permitted under section 80C.

When can A subscriber exit from National Pension Scheme?

Upon Superannuation: On attaining the age of 60years a subscriber has to use the 40% of the amount to purchase an annuity i.e., the regular monthly income and he can withdraw the rest of the amount. In the case of the total corpus being Rs. 2lac or less than he can withdraw 100% amount.

Pre-Mature Exit: If a subscriber withdraws the total amount before attaining the age of 60 years then he must use 80% of the fund in purchasing an annuity for the regular monthly income and the rest i.e., 20% can be withdrawn as the lump sum amount. If the total corpus is equal to or less than Rs. 2Lac then he can withdraw 100% of the amount.

Upon Death: The entire accumulated corpus ( i.e., 100% ) is paid to the nominee or to the legal heir of the subscriber.