NPS Scheme Benefit
The Pension Fund Regulatory and Development Authority (PFRDA) and the Central Government administer the National Pension Scheme (NPS) India.
It is a voluntary and long-term retirement investment plan.
The following is discussed in this article: Latest Update
The CBDT informs Form 12BBA, a declaration form, to be submitted by qualified senior citizens to the designated banks in order to receive an exemption from filing the ITR.
It is suggested in Budget 2021 to exempt senior citizens from submitting income tax returns if their sole annual income sources are pension income and interest income.
Section 194P has been newly added to require banks to deduct tax from the pension and interest income of senior people over the age of 75 who receive income from the bank.
The NPS is the National Pension Scheme.
What is NPS?
The National Pension Scheme, commonly known as the National Pension System.
It is available to all employees in the public sector, private sector, and unorganised sector, with the exception of those in the Armed Forces.
In the NPS system, users can make a minimum annual contribution of Rs. 6,000, which can be paid in a fixed amount or in minimum monthly instalments of Rs.500.
In the NPS, subscriber contributions are invested in market-linked securities such as debt and equities, and returns are depending on the profitability of these assets.
The current interest rate on contributions to the NPS is 8-10%.
Any Indian citizen between the ages of 18 and 60 is eligible to open a National Pension Scheme account.
National Pension Scheme, which is governed by PFRDA, matures at age 60 and can be extended to age 70.
The national pension scheme permits subscribers to make partial withdrawals of up to 25 percent of their contributions after three years of account establishment for defined purposes, such as -
- the purchase of a home,
- the sponsorship of a child's education, or
- the treatment of any critical illnesses.
Charges and Contributions of the NPS Scheme
Central Record Keeping Agency (CRA)
Permanent Retirement Account (PRA) Opening charges
Private / Government
CRA charges if the individual opts for a Physical PRAN card
NCRA- Rs. 40
KCRA- Rs. 39.36
CRA charges if the individual opts for an ePRAN card
(Physical welcome kit)
NCRA- Rs. 35
KCRA- Rs. 39.36
Welcome kit via email
NCRA- Rs. 18
KCRA- Rs. 4
Maintenance cost of PRA (Annually)
NCRA: Rs. 69
KCRA: Rs. 57.63
NCRA: Rs. 3.75
KCRA- Rs. 3.36
Note: The fee decrease will be based on the current fee structure and will exclude any applicable taxes.
CRAs will apply fees after the deployment of the functionality to capture the choice of NPS members between physical and electronic PRAN cards.
Point of Presence (POP)
Permanent Retirement Account (PRA) Opening charges
Initial contribution during registration
• 0.25% of the contri-bution Min. Rs. 20 Max. Rs. 25000
• Non-Financial Rs. 20
• Less than 6 months and contribution of Rs. 1000
Rs. 50 per annum
• 0.10% of contri-bution,
• Min. Rs. 10 Max. Rs. 10000
Other Category Charges
Asset Servicing charges
0.0032% per annum for Electro-nic segment & Physical segment
Reimburse-ment of Expenses
0.005% per annum
Fee for Payment Gateway Service (Applicable for transactions made on the eNPS platform)
Mode of Payment
Method for quotation rate per transaction
Payment Gateway Service Provider
IndiaIdeas.com Limited (Billdesk)
(%) of transaction value
The flat rate in INR
Eligibility Standards of the NPS Scheme
Who should contribute to the NPS?
The NPS is a suitable option for those with a low-risk tolerance who wish to plan for retirement early on.
A regular pension (income) during your retirement years will undoubtedly be a gift, particularly for those retiring from private-sector employment.
This type of regular investment can have a significant impact on your life after retirement.
In fact, salaried individuals seeking to maximise their 80C deductions can also take this route.
NPS Features & Benefits
Some of the NPS money is put into stocks (this may not offer guaranteed returns).
It delivers returns that are significantly greater than other traditional tax-saving investments, such as the PPF.
This method has been in existence for over a decade and has yielded annualised returns between 8 and 10 percent.
In the NPS, you also have the opportunity to switch fund managers if you are unhappy with the fund's performance.
2. Risk Assessment
Currently, the National Pension Scheme's equity exposure is limited to between 75% and 50%.
The limit for government employees is 50%.
In accordance with the authorised range, the equity portion will decrease by 2.5% year commencing in the year the investor turns 50.
However, the maximum is set at 50% for investors aged 60 and older.
This stabilises the risk-return relationship for the benefit of investors, so the capital is somewhat protected from the volatility of the equity market.
The NPS has a greater earning potential than other fixed-income plans.
3. Tax effectiveness – NRS tax advantage
In accordance with section 80C of the Income Tax Act, the National Pension System exempts from tax contributions of up to Rs. 1.5 lakh.
Moreover, in the NPS plan, employer and employee contributions are eligible for tax exemption.
This is a partial U/S 80self-contribution. Under this clause, a deduction of up to 10% of the wage can be claimed for tax exemption.
This limit for self-employed taxpayers is 20% of their gross income.
This section addresses the contribution made by employers to the NPS plan.
This benefit does not apply to taxpayers who are self-employed. The maximum amount eligible for tax exemption is the lesser of the following:
- Employer's actual NPS contribution 10% of Basic Plus Depreciation Allowance
- Total gross income
Under section 80CCD(1B), you can claim any excess self-contribution (up to Rs 50,000) as a National Pension Scheme (NPS) tax benefit.
4. Withdrawal Rules Following 60 Years
Contrary to popular misconception, you cannot withdraw your whole NPS account balance upon retirement.
You must set aside at least 40% of the sum in order to obtain a regular pension from a PFRDA-registered insurance company.
The remaining 60% is currently tax-free.
The most recent government update indicates that the entire NPS withdrawal amount is exempt from taxation.
5. Rules for Early Withdrawal and Exit
As a pension plan, it is essential that you continue saving until age 60.
However, if you have invested for at least three years, you may withdraw up to 25 percent for specific purposes.
Among these include the wedding or higher education of children, the building or purchase of a home, or medical care for oneself or a family member.
You may withdraw up to three times (with a five-year interval) during the term.
Tier I accounts are the only ones subject to these restrictions; tier II accounts are not restricted.
Please scroll down for additional information.
6. Equity Allocation Rules
The NPS invests in various schemes, Scheme E of which invests in equities.
You may invest no more than 50% of your capital in equities.
There are two investment alternatives available: auto choice and active choice.
Based on your age, the auto option determines the risk profile of your assets.
For example, the older you are, the more secure secure your investments will be.
The active option enables you to choose the investment scheme and allocate your funds.
7. Capability to alter the Scheme or Fund Manager
If you are unhappy with the performance of your pension plan or fund manager, you have the option to switch to an NPS.
This option is available to both tier I and tier II accounts.
8. It is Optional
In the NPS, the subscriber can make contributions at any time during the fiscal year and can modify the amount he or she wishes to invest annually.
9. Provides Versatility
National Pension Scheme provides subscribers with flexibility, as they can select their preferred investment and pension fund and see their investments increase.
10. It is Easy
Subscribers can open an NPS account by visiting the eNPS website (https://enps.nsld.com/eNPS/) or by visiting one of the Presence Points (POP).
How to create an NPS account
The PFRDA governs the operations of the NPS and provides both online and offline account opening options.
To open an NPS account offline or manually, you must first find a PoP, which could be a bank.
Collect a membership form from the POP closest to you and submit it with your KYC documents.
If you are already KYC-compliant with that bank, ignore it.
The PoP will provide you with a PRAN - Permanent Retirement Account Number - once you have made the initial contribution (at least Rs.500 or Rs.250 monthly or Rs.1,000 annually).
This number and the password provided in your sealed welcome kit will allow you to access and manage your account.
This procedure has a one-time registration charge of Rs. 125.
It is now feasible to open an NPS account in under thirty minutes.
Creating an online account (enps.nsdl.com) is simply provided you a link to your PAN, Aadhaar, and mobile number.
You can verify your registration with the OTP delivered to your mobile phone.
This will give you a PRAN, which you can use to log in to NPS.
Types of NPS Account
Tier I and Tier II are the two basic account types within the NPS.
The first account is the default, while the second is an optional feature.
The following table describes the two account types in detail.
NPS Tier-I Account
Up to Rs 2 lakh p.a.(Under 80C and 80CCD)
1.5 lakh for govt employees Other employees-None
Minimum NPS contribution
Rs 500 or Rs 500 or Rs 1,000 p.a.
Maximum NPS contribution
Tier-I accounts are required for all members of the NPS programme.
The employees of the Central Government are required to contribute 10% of their base income.
For everyone else, the NPS represents a purely optional means of saving and investing.
Comparing the NPS to other Tax Savings Instruments
PPF and tax-free Fixed Deposits (FD). Here is how they compare to the National Pension Schemes:
8% to 10%*
12% to 15%*
7% to 9%$
*. Expected, $. Guaranteed
The NPS can generate larger returns than the PPF and FDs, but it is less tax-efficient at maturity.
For example, you can withdraw up to 60% of the amount earned in your NPS account.
20% of this amount is taxed. The taxable status of NRS withdrawals is subject to change.
When comparing NPS to ELSS
The National Pension Scheme has an equity allocation, which is a bonus.
However, the equity allocation remains lower than that of tax-efficient mutual funds.
Equity-Linked Savings Schemes generally invest in equities and can yield larger returns than the National Pension Scheme.
The lock-in period of tax-saving mutual funds is also shorter than that of the NPS, at only three years.
In addition, if you are an active risk-taker, NPS exposure to equities will not be sufficient over the long term.
Since ELSS can satisfy this condition, it benefits investors with greater risk tolerance.
How to sign in for the first time to your NPS account?
- Step 1: To access your NPS account, you'll need a 12-digit Permanent Retirement Account Number (PRAN).
- Step 2: To obtain PRAN, submit the required documentation on the NSDL website or at Point of Presence (POP) service providers.
- Step 3: Navigate to https://enps.kfintech.com/login/login/ to access the eNPS login page.
- Step 4: Click the 'Generate/Reset password link at the bottom of the page if you are a first-time visitor who has forgotten their password.
- Step 5: Enter PRAN, date of birth, and the captcha to generate an OTP, and then click "Submit."
- Step 6: After verifying your cell phone number, they'll send you a one-time password (OTP). After entering this OTP on-screen, your password will be validated.
- Step 7: Now, return to the login page and input your PRAN, password, and captcha. Click the "Sign In" button.
- Step 8: You will be taken to your account's homepage.
What is the NPS login user ID?
Your Permanent Retirement Account Number (PRAN) provided during NPS account registration will serve as your user ID for logging in to the eNPS-NSDL website.
Summing things up
Consider investing in the NPS if the above benefits match your risk profile and financial goals.
However, if you are open to greater equity exposure, there are numerous mutual funds available that suit people from various backgrounds.
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