The National Pension System (NPS) is a comprehensive retirement savings and pension scheme introduced by the Government of India. Launched in 2004, the NPS is regulated and administered by the Pension Fund Regulatory and Development Authority (PFRDA).
It is designed to help individuals build a substantial retirement corpus by making voluntary contributions over their working years, ensuring financial security during retirement.
Types of NPS Account
|Particulars||NPS Tier-I Account||NPS Tier-II Account|
|Withdrawals||As per the rules/regulations||Permitted|
|Tax exemption||Up to Rs 2 lakh p.a. (Under 80C and 80CCD)||1.5 lakh for government employees, Other employees – None|
|Minimum NPS contribution for opening an account||Rs. 500||Rs. 1,000|
|Minimum NPS contribution||Rs 500 per month or Rs 1,000 p.a.||Rs. 250|
|Maximum NPS contribution||No limit||No limit|
The Tier-I account is mandatory for everyone who opts for the NPS scheme. Central Government employees have to contribute 10% of their basic salary, while for everyone else, NPS is a voluntary investment option.
NPS operates on a two-tier system:
- Tier-I Account: This is the primary pension account with strict withdrawal restrictions. Subscribers can only access the accumulated corpus after reaching the retirement age, which is typically set at 60 years. Withdrawals before retirement are allowed under specific conditions, such as critical illness or education expenses.
- Tier-II Account: This is an optional savings account with more flexibility in withdrawals. Subscribers can open a Tier-II account only if they have an active Tier-I account. Unlike the Tier-I account, there are no restrictions on withdrawals from the Tier-II account.
One of the key features of NPS is the choice it offers in terms of investment options. Subscribers can select their preferred asset allocation strategy, known as “Active Choice,” or opt for the “Auto Choice” where investments are managed based on the subscriber’s age.
Contributions made to NPS are eligible for tax benefits under Section 80CCD of the Income Tax Act, making it an attractive retirement savings option for individuals. Additionally, there are tax benefits available on partial withdrawals and the annuity received upon maturity.
The accumulated corpus in the Tier-I account can be used to purchase an annuity at retirement, providing a regular pension income. Subscribers can choose from various annuity options to suit their retirement needs.
Over the years, NPS has gained popularity as a reliable retirement planning tool due to its portability, flexibility, and regulated fund management.
It serves as a valuable financial instrument to help individuals secure their financial future during retirement by encouraging disciplined savings and prudent investment decisions.
NPS Interest Rate
The interest rate on NPS (National Pension Scheme) is not fixed but depends on the performance of the underlying assets. NPS is a market-linked product that allows investors to choose a mix of equity, government debt, corporate debt, and alternative assets.
The returns upon retirement cannot be determined beforehand and may vary based on market conditions and the chosen asset allocation. NPS offers two types of accounts: Tier I and Tier II.
NPS Tier 1 Returns:
|Asset Classes||1-year returns (%)||5-year returns (%)||10-year returns (%)|
|Equity (Class E)||15.33-18.81%||13.11-15.72%||10.45-10.86%|
|Corporate Bonds (Class C)||12.46-14.47%||9.27-10.15%||10.05%-10.64%|
|Government Bonds (Class G)||12.95-14.26%||10.29-10.88%||9.57-10.05%|
|Alternate Assets (Class A)||3.98-16.73%||NA||NA|
NPS Tier 2 Returns:
|Asset Classes||1-year returns (%)||5-year returns (%)||10-year returns (%)|
National Pension System registration process
Option 1 – Registration using Aadhaar:
- You must possess an ‘Aadhaar number‘ linked to a registered mobile number.
- NPS KYC verification will be conducted using Aadhaar through a One Time Password (OTP) sent to your registered mobile number.
- Your demographic details and photo will be retrieved from the Aadhaar database and pre-filled in the online form.
- Complete all mandatory online fields.
- Upload your scanned signature (in .jpeg/.jpg format, file size between 4kb – 12kb) during the registration.
- If you wish to replace the photo obtained from Aadhaar, you have the option to upload a scanned photograph.
- You will be directed to a payment gateway to make the NPS account payment using Debit/Credit card or Internet Banking.
Option 2 – Registration using PAN (KYC verification by Bank):
- You must possess a valid ‘Permanent Account Number’ (PAN).
- Ensure you have a bank account with one of the empanelled Banks for KYC verification during eNPS subscriber registration.
- Your KYC verification will be conducted by the bank you select during registration. It’s crucial that the name and address provided during registration match the bank’s records for successful KYC verification. Any discrepancies may result in rejection, and if rejected, please contact the bank for resolution.
- Fill in all mandatory online fields.
- Upload your scanned photograph and signature in .jpeg/.jpg format, ensuring file sizes are between 4kb – 12kb.
- Proceed to the payment gateway to make the NPS account payment via Internet Banking.
Option 3 – Registration using Driving License through Digilocker:
- You must have a valid Driving License uploaded in Digilocker.
- Demographic details (Name, Gender, Date of Birth, Address, and Photo) will be retrieved from Digilocker upon successful authentication. Other mandatory details need to be filled out online.
- You are required to upload scanned copies of your PAN card and a Cancelled Cheque in *.jpeg/ *.jpg/ .png /.pdf (unsigned) format, with a file size ranging from 4KB to 2MB.
- You need to upload your scanned Signature in *.jpeg/ *.jpg/ *.png format, with a file size between 2KB and 5MB.
- You will be directed to a payment gateway to make the payment for your NPS account using Internet Banking.
- Subscribers have the option to either follow OTP authentication or eSign the registration form.
- Contributions are credited to PRANs on a T+2 basis, subject to the receipt of clear funds from the Payment Gateway Service Provider.
Additionally, NRI subscribers should:
- Select the Bank Account Status, i.e., Non-Repatriable account or Repatriable account.
- Provide NRE/NRO bank account details and upload scanned copies of the passport.
- Choose the preferred address for communication, i.e., Overseas Address or Permanent Address (communication at overseas address may entail extra charges).
Processing of Subsequent Contribution:
All existing subscribers, registered through both online and offline modes, can contribute to Tier I & Tier II accounts using ‘eNPS.’ To contribute online, you need to:
- Have an active Tier I / Tier II account.
- Authenticate your PRAN using the OTP sent to your registered mobile number.
- Make the payment through your Debit / Credit card or UPI, or use the Internet Banking option.
- Note that POP Service Charges will be applicable on the contribution amount at 0.10% (subject to a minimum of ₹ 10 and a maximum of ₹ 10,000 per transaction). This service charge will not be applicable to subscribers registered in eNPS.
- Contributions are credited to PRANs on a T+2 basis, subject to the receipt of clear funds from the Payment Gateway Service Provider.
Ensure that you meet the eligibility criteria, which include being an Indian citizen and being at least 18 years old.
Decide whether you want to open a Tier-I or Tier-II NPS account. Tier-I is the primary retirement account with strict withdrawal restrictions, while Tier-II offers more flexibility but can only be opened if you have a Tier-I account.
Select a bank or financial institution that acts as a Point of Presence (PoP) for NPS. These PoPs facilitate the NPS account opening process.
Obtain the NPS registration form from your chosen PoP or download it from the official NPS website. Complete the form with accurate personal and financial information.
Attach the necessary Know Your Customer (KYC) documents, such as proof of identity, proof of address, and passport-sized photographs, as required by the PoP.
You can nominate a beneficiary who will receive the accumulated corpus in case of your unfortunate demise.
Decide on your investment preferences, including the choice of investment funds and asset allocation. You can opt for an Active or Auto Choice strategy based on your risk tolerance.
Deposit the initial contribution amount required to open the NPS account. The minimum amount may vary depending on the PoP and the type of account.
Upon successful registration, you will receive a Permanent Retirement Account Number (PRAN), which is your unique identification number for NPS.
You can access and manage your NPS account online through the Central Recordkeeping Agency’s (CRA) website or other designated platforms. This allows you to check your account balance, make contributions, and track your investments.
How to login to your National Pension Scheme Account?
Step 1: To access your NPS account, you’ll need a 12-digit Permanent Retirement Account Number (PRAN). Obtain your PRAN by submitting the required documentation either on the NSDL website or at the Point of Presence (POP) service providers.
Step 2: Visit the official NSDL CRA portal.
Step 3: Enter your PRAN, date of birth, set a new password, confirm the password, and complete the captcha. Once you’ve provided all the required details, click on the “Submit” button.
Step 4: An IPIN (Internet Personal Identification Number) will be generated. You will use this IPIN to log in to the NSDL portal.
Step 5: Go to the NSDL eNPS page and click on “Login with PRAN/IPIN.”
Step 6: On the next page, use your PRAN and IPIN to access your NPS account.
Your user ID for NPS login is your Permanent Retirement Account Number (PRAN), which you receive upon registering for your NPS account.
List of Banks associated with Bill Desk Payment Gateway
|NO.||Bank Name||NO.||Bank Name|
|1||Andhra Pragathi Grameena Bank||2||AU Small Finance Bank|
|3||Axis Bank (Retail)||4||Axis Bank (Corporate)|
|5||Bank of Bahrain and Kuwait||6||Bank of Baroda (Corporate)|
|7||Bank of Baroda (Retail)||8||Bank of India|
|9||Bank of Maharashtra||10||Canara Bank|
|11||Capital Small Finance Bank||12||CSB Bank Ltd|
|13||Central Bank of India||14||City Union Bank|
|15||Cosmos Bank||16||DCB Bank|
|17||DENA Bank – Now Bank of Baroda||18||Deutsche Bank|
|19||Dhanlaxmi Bank (Retail)||20||digibank by DBS|
|21||Equitas Bank||22||ESAF Small Finance Bank|
|23||Federal Bank||24||The Gujarat State Co – Operative Bank Ltd|
|25||HDFC Bank (Retail)||26||ICICI Bank (Retail)|
|27||IDBI Bank (Corporate)||28||IDBI Bank (Retail)|
|29||IDFC First Bank Limited||30||Indian Bank|
|31||Indian Overseas Bank||32||Induslnd Bank|
|33||Janata Sahakari Bank||34||Kalupur Bank|
|35||Karnataka Bank||36||Karur Vysya Bank|
|37||Kotak Bank (Retail)||38||Lakshmi Vilas Bank|
|39||Mehsana Urban Co-Op Bank||40||Maharashtra Gramin Bank|
|41||NKGSB Bank||42||Nutan Nagarik Sahakari Bank Ltd|
|43||Punjab and Sind Bank||44||Punjab National Bank (Corporate)|
|45||Punjab National Bank (Retail)||46||RBL Bank (Retail)|
|47||Saraswat Bank||48||SBM Bank (India) Ltd|
|49||SVC Co-Operative. Bank (Retail)||50||South Indian Bank Ltd|
|51||Standard Chartered Bank (Retail)||52||State Bank of India|
|53||Tamilnad Mercantile Bank||54||The Surat People’s Co – Operative Bank Ltd|
|55||The SUTEX CO-OP BANK LTD||56||TNSC Bank|
|57||UCO Bank (Corporate)||58||UCO Bank (Retail)|
|59||Ujjivan Small Finance Bank||60||Union Bank of India (Corporate)|
|61||Union Bank of India (Retail)||62||Utkarsh Small Finance Bank|
|63||Varachha Co-Operative Bank Ltd||64||YES Bank (Retail)|
|65||Zoroastrian Co-Operative Bank Ltd|
National Pension System (NPS) Tax Benefits
Tax Benefits available to Individuals:
- Section 80 CCD (1) Deduction: Any individual who is an NPS subscriber can claim a tax benefit under Section 80 CCD (1) within the overall ceiling of Rs. 1.5 lakh under Section 80 CCE.
- Exclusive Tax Benefit under Section 80CCD (1B): An additional deduction of up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is in addition to the deduction of Rs. 1.5 lakh available under Section 80C of the Income Tax Act, 1961.
Tax Benefits under the Corporate Sector:
Corporate subscribers can also benefit from tax incentives:
- Section 80CCD (2) Deduction: Additional tax benefits are available to subscribers under the corporate sector under Section 80CCD (2) of the Income Tax Act. Employer’s NPS contribution (for the benefit of the employee) up to 10% of salary (Basic + DA) is deductible from taxable income, up to 7.5 lakh.
- Corporates: Employer’s contribution towards NPS up to 10% of salary (Basic + DA) can be deducted as a ‘Business Expense’ from their Profit & Loss Account.
How to make the Investment to avail the Tax Benefit:
Existing subscribers can approach any Point of Presence Service Provider (POP-SP) or visit the eNPS website (https://enps.nsdl.com) to make additional contributions to their Tier I account. It’s important to note that tax benefits are applicable for investments made in the Tier I account only.
Investment Proof for Tax Benefit:
Subscribers can use the Transaction Statement as investment proof. Alternatively, subscribers from “All Citizens of India” can download the receipt of voluntary contributions made in their Tier I account for the required financial year from the NPS account log-in.
This receipt can be downloaded from the “Statement of Voluntary Contribution under National Pension System (NPS)” available under the main menu “View” in the NPS account log-in.
Other Tax Benefits under NPS:
Apart from the tax benefits available under Section 80CCD, there are other tax benefits under NPS:
- Tax Benefits on Partial Withdrawal: Amounts partially withdrawn from NPS Tier I accounts for specified purposes are tax-exempt under Section 10 (12B) of the Income Tax Act.
- Tax Benefit on Annuity Purchase: The amount invested in the purchase of an annuity is fully exempt from tax. However, annuity income received in subsequent years will be subject to income tax.
- Tax Benefit on Lump Sum Withdrawal: Up to 60% of the total corpus withdrawn in a lump sum is exempt from tax. For example, if the total corpus at exit is 10 lakhs, you can withdraw 60% of it (i.e., 6 lakhs) without paying any tax. Only the annuity income received in subsequent years will be subject to income tax based on applicable tax slabs.
Tax Benefits on Investments under Tier II Account:
There are no tax benefits on investments made in the Tier II NPS Account.
Please note that tax laws and regulations can change over time, so it’s essential to stay updated with the latest tax rules and consult with tax professionals for specific tax-related advice regarding NPS investments.
|Tax Benefits||Employees||Self-Employed Individuals||Corporates/Employers|
|Tax Benefits on Self-Contribution||– Tax deduction up to 10% of salary (Basic + DA) under section 80 CCD(1)||– Tax deduction up to 20% of gross income under section 80 CCD(1)||N/A|
|– Tax deduction within the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE||– Tax deduction within the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE|
|– Tax deduction up to ₹50,000 under section 80 CCD(1B) over and above the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE||– Tax deduction up to ₹50,000 under section 80 CCD(1B) over and above the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE|
|Tax Benefits on Employer’s Contribution||– Eligible for tax deduction up to 10% of salary (Basic + DA) contributed by the employer under Section 80 CCD(2)||N/A||– Eligible for tax deduction on the amount contributed as the employer’s contribution from the Profit & Loss Account under section 36(1)(iv)(a) up to 10% of the salary (Basic + DA) of employer’s contribution as a ‘Business Expense’|
|– Tax deduction over the limit of Rs. 1.50 lakh provided under section 80 CCE|
|Tax Benefits on Partial Withdrawal||– Eligible for tax exemption on the amount withdrawn up to 25% of the self-contribution||– Eligible for tax exemption on the amount withdrawn up to 25% of the self-contribution|
|– Subject to terms and conditions specified by PFRDA under section 10(12B)||– Subject to terms and conditions specified by PFRDA under section 10(12B)|
|Tax Benefit on Purchase of Annuity||– Eligible for tax exemption on the purchase of annuity upon attaining the age of 60 or superannuation under section 80CCD(5)||– Eligible for tax exemption on the purchase of annuity upon attaining the age of 60 or superannuation under section 80CCD(5)|
|– Subsequent income received from annuity is subject to tax under section 80CCD(3)||– Subsequent income received from annuity is subject to tax under section 80CCD(3)|
|Tax Benefit on Lump Sum Withdrawal||– Eligible for tax exemption on lump sum withdrawal of 60% of accumulated pension wealth upon attaining the age of 60 or superannuation under section 10(12A)||– Eligible for tax exemption on lump sum withdrawal of 60% of accumulated pension wealth upon attaining the age of 60 or superannuation under section 10(12A)|
|Tax Benefits to Corporates/ Employers||N/A||N/A||– Eligible for tax deduction on the amount contributed as the employer’s contribution from the Profit & Loss Account under section 36(1)(iv)(a) up to 10% of the salary (Basic + DA) of employer’s contribution as a ‘Business Expense’|
Withdrawal Rules for National Pension Scheme After Retirement (Age 60 and Above)
Under the current regulations of the National Pension Scheme (NPS), individuals who retire at the age of 60 or older have specific withdrawal options.
As per the prevailing guidelines, retirees have the flexibility to withdraw up to 60% of their total accumulated corpus as a lump-sum payment, while the remaining 40% is allocated towards purchasing an annuity plan.
However, a noteworthy feature of the new NPS regulations permits subscribers to withdraw the entire corpus without the obligation to purchase an annuity plan if the total amount is less than or equal to Rs. 5 lakh. Importantly, these withdrawals are also exempt from income tax.
For instance, if an individual’s corpus stands at Rs. 4.5 lakh upon retirement, they can choose to withdraw the full sum. On the other hand, if the corpus surpasses Rs. 10 lakh, the tax-free withdrawal threshold is capped at Rs. 6 lakh. In such cases, the remaining Rs. 4 lakh must be used to procure an annuity plan.
It’s crucial to bear in mind that while lump-sum withdrawals from NPS remain tax-free, the annuity payments are subject to taxation based on the individual’s applicable income tax bracket.
This means that if the annuity amount totals Rs. 4 lakh, it will be taxed at the individual’s respective tax rate, and the taxation is determined in accordance with the income bracket in the year of payment.
National Pension Scheme Early Withdrawal and Exit Guidelines
Under the National Pension Scheme (NPS), specific rules govern the early withdrawal or exit options available to subscribers. These rules are as follows:
Upon Superannuation (Age 60): When a subscriber reaches the age of superannuation, typically at age 60, they are required to utilize a minimum of 40% of their accrued pension corpus to procure an annuity plan that offers a regular monthly pension. The remaining portion of the corpus can be withdrawn as a lump sum.
Pre-mature Exit (Before Age 60): In the event of a premature exit from the NPS, occurring before reaching the age of superannuation (before turning 60), at least 80% of the subscriber’s accumulated pension corpus must be used to purchase an annuity plan that provides a regular monthly income. However, if the total corpus is less than or equal to Rs.2.5 lakh, the subscriber has the option to opt for a 100% lump-sum withdrawal.
Upon the Subscriber’s Demise: In the unfortunate event of the subscriber’s demise, the entire accrued pension corpus (100%) will be disbursed to the subscriber’s nominated individual or legal heir.
Allocation of Equity in National Pension Scheme
Within the National Pension Scheme (NPS), allocation of funds to equity is subject to specific guidelines:
- Scheme E for Equity Investment: The NPS offers Scheme E, which focuses on investments in equity. Subscribers are permitted to allocate a maximum of 50% of their total investment towards equities.
- Investment Options: NPS provides two primary investment options – Auto Choice and Active Choice.
- Auto Choice: Under this option, the allocation of funds is determined by the subscriber’s age, aligning with their risk profile. For example, older subscribers are steered towards more stable and less risky investments.
- Active Choice: Subscribers opting for the Active Choice have the autonomy to select specific schemes and allocate their investments accordingly, providing greater control over their portfolio.
These equity allocation rules within NPS are designed to cater to the varied risk appetites and preferences of subscribers, ensuring that their investments align with their financial objectives and individual circumstances.
Eligibility for National Pension Scheme (NPS)
Participation in the National Pension Scheme (NPS) is open to individuals who meet the following eligibility criteria:
- The individual must be an Indian citizen, either residing within the country or a Non-Resident Indian (NRI).
- Age range for eligibility is between 18 to 70 years.
- Compliance with the Know Your Customer (KYC) requirements outlined in the application form is mandatory.
- The individual must possess the legal capacity to enter into a contract, as stipulated by the Indian Contract Act.
- Overseas citizens of India (OCI), Persons of Indian Origin (PIOs), and Hindu Undivided Families (HUFs) are not eligible to enroll in NPS.
- NPS is designed as an individual pension account and cannot be established on behalf of a third party.
How to Invest in the National Pension Scheme (NPS)
The National Pension Scheme (NPS) offers both online and offline methods for opening an account, all regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
To open an NPS account offline, you need to visit a Point of Presence (PoP), which could be a bank or another authorized entity registered with the PFRDA.
Obtain a subscriber form from your nearest PoP and submit it along with the necessary KYC documents. If you are already KYC-compliant with that bank, you can skip this step.
After making the initial investment (a minimum of Rs. 500 or Rs. 250 monthly or Rs. 1,000 annually), the PoP will provide you with a Permanent Retirement Account Number (PRAN).
This PRAN, along with the password in your sealed welcome kit, will allow you to manage your NPS account. There is a one-time registration fee of Rs. 125 for this process.
Opening an NPS account online has become a swift process, taking less than half an hour. You can easily open an account online by visiting the enps.nsdl.com website and linking your account to your PAN, Aadhaar, and mobile number.
You can validate the registration using the OTP sent to your mobile, which will generate your PRAN (Permanent Retirement Account Number). This PRAN is your key to accessing and managing your NPS account through online login.
What is NPS (National Pension System)?
The NPS is a voluntary long-term retirement savings scheme, designed to provide regular income during retirement. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
Who can join NPS?
Any Indian citizen between the ages of 18 and 70 can join NPS. NRIs are also eligible. However, OCIs (Overseas Citizens of India), PIOs (Persons of Indian Origin), and HUFs (Hindu Undivided Families) are not eligible.
How does NPS work?
Subscribers contribute regularly to their NPS accounts during their working years. These contributions are invested in various asset classes. Upon retirement, a portion of the corpus must be used to purchase an annuity, providing a regular pension income.
What are the tax benefits of NPS?
NPS offers tax benefits under Section 80CCD(1) and 80CCD(1B). Subscribers can claim deductions on their contributions up to specified limits. Additionally, the lump sum withdrawal is tax-free up to certain limits.
Can I withdraw money from my NPS account before retirement?
Partial withdrawals are allowed for specific purposes, subject to certain conditions. However, pre-mature withdrawals are generally discouraged.
What happens to my NPS account if I change jobs or locations?
Your NPS account remains the same, and you can continue contributing to it even if you change jobs or locations. You have the option to transfer your NPS account to the new employer’s corporate sector NPS or retain it as an individual NPS.
What is the difference between Tier I and Tier II NPS accounts?
Tier I is the mandatory NPS account, primarily for retirement savings. Tier II is a voluntary account with more liquidity, allowing withdrawals at any time. Tax benefits are available only for Tier I contributions.
How can I check my NPS account balance?
You can check your NPS account balance online through the CRA (Central Recordkeeping Agency) website, or you can use the NPS mobile app. You can also receive regular statements through email.
Can NRIs invest in NPS?
Yes, NRIs can invest in NPS accounts, subject to certain conditions and in adherence to FEMA guidelines.
What is the NPS interest rate, and how are returns calculated?
NPS returns are not fixed and depend on the performance of the chosen asset allocation. Returns are market-linked and can vary based on the performance of equity, government debt, corporate debt, and alternative assets.
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