National Pension System (NPS) is a retirement benefit Scheme introduced by the Government of India. It is designed to provide financial security to Indian citizens in their old age. It facilitates a regular income post-retirement for all the subscribers. It was launched by the government of India and regulated by the PFRDA (Pension Fund Regulatory and Development Authority), which is the governing body. Every individual is encouraged to save for their retirement voluntarily through this scheme. The National Pension System (NPS) is based on a unique Permanent Retirement Account Number (PRAN) which is allotted to every individual who applies for it. NPS is structured into two main tiers:
Tier I Account: This is a primary pension account also called a pension account. It provides the following features to the subscribers.
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Non-withdrawable: Contributions to this account are locked in until the age of 60, except under certain specific circumstances.
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Minimum Contribution: Rs. 500 per contribution and Rs. 1,000 per year.
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Tax Benefits: Contributions are eligible for tax deductions under Section 80C and an additional Rs. 50,000 under Section 80CCD(1B) of the Income Tax Act.
Tier II Account: This is a voluntary savings account for the people who apply for it. It offers greater flexibility:
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Withdrawable: Subscribers can withdraw from this account at any time.
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Minimum Contribution: Rs. 250 per contribution with no annual minimum requirement.
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No Tax Benefits: Contributions to Tier II do not qualify for tax deductions
NPS Account Types and Contributions
| Feature | Tier I | Tier II |
|---|---|---|
| Minimum Contribution | Rs. 500 per contribution, Rs. 1,000 per year | Rs. 250 per contribution, no annual minimum |
| Withdrawability | Non-withdrawable until 60 (with exceptions) | Withdrawable anytime |
| Tax Benefits | Eligible under Section 80C and Section 80CCD(1B) | No tax benefits |
NPS Eligibility and Required Documents
| Criteria/Requirement | Details |
|---|---|
| Eligibility | Indian citizenship, Age 18-70 years |
| Identity Proof | Aadhaar card, PAN card, passport, voter ID |
| Address Proof | Aadhaar card, passport, voter ID, utility bill |
| Date of Birth Proof | Birth certificate, passport, PAN card |
| Bank Account Proof | Canceled cheque, bank passbook, or statement |
| Photograph | Recent passport-sized photograph |
NPS Application Process
| Process | Steps |
|---|---|
| Online | Visit NPS Website, fill form, choose PFM, make contribution, get PRAN |
| Offline | Visit PoPs, collect form, fill and submit with documents and initial contribution, receive PRAN by mail |
NPS Account Opening Contribution:
Minimum Contribution required at the time of account opening
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Tier I: Rs.500/-
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Tier II: Rs.1000/-
Minimum Subsequent Contribution amount required
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Tier I: Rs.500/-
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Tier II: Rs. 250/-
Minimum contribution required per year
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Tier I: Rs.1000/-
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Tier II: NIL
Minimum number of contributions required in a year
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Tier I: 1
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Tier II: NIL
How to Apply for the NPS?
Enrolling in the National Pension Scheme (NPS) involves several steps, here is the complete process if you want to apply for it-
Eligibility: You must hold Indian citizenship. You must be between the ages of 18 and 70.
Required Documents: Here is the list of required documents-
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Identity Proof: Aadhaar card, PAN card, passport, voter ID, and driving license.
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Address Proof: Aadhaar card, passport, voter ID, utility bill, bank statement.
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Date of Birth Proof: Birth certificate, passport, PAN card.
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Bank Account Proof: Canceled cheque, bank passbook, or bank statement.
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Photograph: Recent passport-sized photograph.
Online Application Process
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Visit the official NPS website by clicking on the https://enps.nsdl.com/eNPS/
OnlineSubscriberRegistration. html?appType=main. -
On the webpage, select your account type, either ‘Individual Subscriber’ or ‘Corporate Subscriber’ etc.
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An application form will appear. Fill out the online application form with personal details like contact information, and PAN card, date of birth and mobile number. Carefully check all the details and click on the Begin Registration.
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Select your preferred PFM from the list of available managers and select investment options.
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Make Initial Contribution: The minimum initial contribution for the NPS Tier I account is Rs. 500 and for the Tier II account is Rs. 250. You can pay through net banking, credit/debit card, or UPI.
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Upon successful submission and payment, a Permanent Retirement Account Number (PRAN) will be generated. You need to save this number for future use.
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You can also print the filled form and paste your photograph, sign it, and send it to the Central Recordkeeping Agency (CRA) within 90 days. The address for CRA is provided on the form.
Offline Enrollment Process:
You can also apply for the NPS offline. Here are the steps
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PoPs are authorized entities by PFRDA to facilitate NPS registration. Banks, financial institutions, and post offices often act as PoPs. First, find your nearest officer.
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Visit the office and collect registration forms.
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Fill out the NPS application form with the required details like name, mobile number, PNa, etc.
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Attach copies of the required documents (identity proof, address proof, date of birth proof, bank account proof, and photograph).
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Carefully check all the details and submit the application form to the office. With the application form, you also have to pay the initial contribution to the officer. The minimum contribution amounts are the same as the online process (Rs. 500 for Tier I and Rs. 250 for Tier II).
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The officer will verify your details and give you a receipt with an acknowledgement number. This will take time. Once it is processed and approved by the government, you will receive your PRAN in the mail. This usually takes a few weeks.
Benefits of NPS
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Tax Benefits: Amounts contributed to NPS are allowed as tax deductions. It makes it a tax-efficient form of retirement savings.
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Flexibility: NPS allows multiple types of investments and a change of fund managers, which makes it flexible. In Addition, there are many entities to apply for it.
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Portability: The subscribers can retain the same NPS account even if they change their employer or place of work.
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Low Cost: It is one of the industries with the minimum fund management charges, thus it offers the subscribers relatively higher returns.
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Professional Management: It is invested through professionally qualified fund managers appointed through the PFRDA. Pension fund regulator under the Ministry of Finance, Govt. of India is trustworthy too.
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Voluntary: NPS is a Voluntary scheme available for all the citizens of India. Even for NRi who hold citizenship.
Taxation Rules For NPS
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Employee Contribution: Up to 10% of salary (basic + DA) is deductible under Section 80C.
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Employer Contribution: Up to 10% of salary is deductible under Section 80CCD(2) without any upper limit.
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Additional Deduction: An additional Rs. 50,000 deduction under Section 80CCD(1B)