What is NPS and its Benefits

What is NPS and its Benefits


What is NPS and its Benefits You have certainly read and listened about NPS ( National  Pension Scheme ) which give tax benefit also. here w...

What is NPS and its Benefits

What is NPS

You have certainly read and listened about NPS ( National  Pension Scheme ) which give tax benefit also. here we are elaborate on some basics for NPS Scheme in 10 Points.

1. What is NPS: National Pension Scheme is a defined contribution-based scheme that is introduced by the government with the objective of extending the old age security coverage to all the Indian citizens who have taken this scheme. You will be given reasonable market-linked returns under NPS over the long run by investing in National Pension Scheme (NPS) you are bound to receive old-age income. The Central Government has introduced the Defined Contribution based Pension System known as the National Pension System (NPS) replacing the existing system of Defined Benefit Pension with effect from January 01, 2004, via its notification Ministry of Finance  OM No 5/7/2003 PR Dt 22/12/2003.

National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life.

2. How It Works : Under NPS, individual savings are pooled in to a pension fund which are invested by PFRDA regulated professional fund managers as per the approved investment guidelines in to the diversified portfolio consist of Government Bonds, Bills, Corporate Debentures and Shares. The contributions will grow and accumulate over the years, depending on the returns earned on the investment made.

​At the time of normal exit from the Scheme, the subscribers may use the accumulated pension wealth under the scheme to purchase a life annuity from a PFRDA empaneled Life Insurance Company.

3. How and Where to open Account : Any resident Indian or NRI aged between 18 to 55 can open an NPS Account (only Tier I/Tier II/Tier III )
For opening account you need to
  1. email-ID, Mobile number and an active Bank account with net Banking facility enabled
  2. Have PAN Card or an Virtual ID number (issued by UIDAI against your Aadhaar Number) 
  3. In case, an applicant selects to open the individual NPS account with PAN, the activation of the PRAN is subject to KYC verification by the empanelled Banks (name and address should match with the bank records) as selected by applicant during the registration process.(not required in case of Virtual ID).To view the list of empanelled banks below :
    1. Abhipra Capital Limited
    2. Alankit Assignments Limited
    3. Angel Broking Limited
    4. Arihant Capital Markets Limited
    5. Bank of Baroda
    6. Bank of India
    7. Bank of Maharashtra
    8. Canara Bank
    9. Central Bank of India
    10. Dayco Securities Private Limited
    11. DBFS Securities Limited
    12. Elite Wealth Advisors Limited
    13. ESAF Small Finance Bank Limited
    14. Eureka Stock And Share Broking Services Limited
    15. Finwizard Technology Private Limited
    16. Gujarat Infotech Limited
    17. HDFC Bank Limited
    18. ICICI Bank Limited
    19. IDBI Bank Limited
    20. Indian Bank
    21. Indian Overseas Bank
    22. Integrated Enterprises (India) Private Limited
    23. Kotak Mahindra Bank Limited
    24. Marwadi Shares and Finance Limited
    25. Monarch Networth Capital Limited
    26. Muthoot Finance Limited
    27. Narnolia Securities Limited
    28. Prudent Corporate Advisory Services Limited
    29. Punjab National Bank
    30. Religare Broking Limited
    31. SMC Global Securities Limited
    32. State Bank of India
    33. Steel City securities Limited
    34. Stock Holding Corporation Of India Limited
    35. Tamilnad Mercantile Bank Ltd
    36. The Karur Vysya Bank
    37. The South Indian Bank Limited
    38. UCO Bank
    39. Union Bank Of India
    40. Way2Wealth Brokers Private Limited
    41. Yes Bank Limited
    42. Zen Securities Limited
  4. Fill up all the mandatory details online
  5. Guidelines on filling details if for tax purposes in jurisdiction (s) Applicant residence is outside India:
    1. ✔ Jurisdiction(s) of Tax Residence: Since US taxes the global income of its citizen, every US citizen of whatever nationality, is also a resident for tax purpose in USA.
    2. ✔ Tax Identification Number(TIN): TIN need not be reported if it has not been issued by the jurisdiction. However if the said jurisdiction has issued a high integrity number with an equivalent level of identification(a "Functional equivalent"),the same may be reported. Examples of that type of number for individual include, a social security/insurance number, citizen/personal identification/services code/number and resident registration number)
    3. ✔ If applicant residence for tax purpose in jurisdiction(s) within India, Permanent Account Number(PAN) to be provided as Tax Identification Number(TIN)
    4. ✔ In case applicant is declaring US person status as 'No' but his/her Country of Birth is US, document evidencing Relinquishment of Citizenship should be provided or reasons for not having relinquishment certificate is to be provided
  6. Scan and upload your photograph (optional if verification is done through Virtual ID) along with signature
  7. Make online payment (Minimum amount of Rs. 500)
  8. Print the filled form and paste photograph & affix signature then after submit the Form to CRA
4. Benefit of NPS :
  1. Flexible- Scheme offers a range of investment options and choice of Pension Funds (PFs) for planning the growth of the investments in a reasonable manner and monitor the growth of the pension corpus. Subscribers can shift from one investment option to another or from one fund manager to another.
  2. Simple – Opening an account with this scheme provides a Permanent Retirement Account Number (PRAN), which is a unique number and it remains with the subscriber throughout his lifetime. 
  3. The scheme is structured into two tiers:
    1. Tier-I account: This is the non-withdrawable permanent retirement account into which the regular contributions made by the subscriber are credited and invested as per the portfolio/fund manager chosen of the subscriber.
    2. Tier-II account: This account is a voluntary withdrawable account which is allowed only when there is an active Tier I account in the name of the subscriber. Withdrawal from this account is permitted as the need of subscriber.
  4. Portable- The Scheme provides seamless portability across jobs and across locations. It would provide hassle-free arrangement for the individual subscribers while he/she shifts to the new job/location, without leaving behind the corpus build, as happens in many pension schemes in India.
  5. Well Regulated- This Scheme is regulated by PFRDA, with transparent investment norms, regular monitoring and performance review of fund managers by NPS Trust. The NPS account maintenance costs under scheme are the lowest as compared to similar pension products across the globe. While saving for a long-term goal, the cost matters a lot as the charges can shave off a significant amount from the corpus over 35-40 years of investment period.
  6. Power of compounding and low cost both: On long run till the retirement, pension wealth accumulation grows over the period of time with a compounding effect. The Scheme account maintenance charges being low, the benefit of accumulated pension wealth to the subscriber eventually become large.
  7. Ease of Access: The Scheme account can be managed online. An Nation Pension Scheme account can be opened through the eNPS portal. Further more contributions can be also be made online through the eNPS portal.
Once the Permanent Retirement Account Number (PRAN) account is opened, an online login id and password is provided to the subscriber. The Subscriber can login and view/manage his NPS account online, over a click.

5. Minimum Amount of Investment: The minimum amount of Investment under this scheme is Rs 6000 in a financial year and Rs 500/- minimum per transaction. There is some Transaction charges that may vary.

6. Investment Options : There are three type of funds in NPS. The E Class Funds are the Equity Fund and invest in Nifty Stocks. The C Class funds are debt funds that invest in corporate bonds. The G Class funds invest in Government securities and Asset Class A - Alternative Investment Funds including instruments like CMBS, MBS, REITS, AIFs, Invlts etc. 

Subscriber can select more than one Asset Class under a single PFM as mentioned below: 
  • Upto 50 years of age, the maximum permitted amount of Equity Investment is 75% of the total asset allocation. 
  • From 51 years and above, maximum permitted Equity Investment amount will be as per the equity allocation matrix provided below. The tapering off of equity allocation will be carried out as per the matrix on DOB of Subscriber. 
  • Percentage contribution value cannot be greater than 5% for Alternative Investment Funds. 
  • The total allocation across G, C, E and A asset classes must be equal to 100%.
7. Additional Tax Benefits : As per amendment made in Income Tax Act via Budget 2015 if you contribute under NPS then you will be eligible to get addition tax benefit under income tax act or Rs 50000/- under Section 80CCD(1B). This deduction will be over and above ceiling limit under 80CCE or Rs 150000/-.
The deduction condition is divided in further parts as per the following sections,
  1. On Employee’s contribution: Employee’s own contribution is allowed for tax deduction under sec 80 CCD (1) of Income Tax Act up to 10% of salary (Basic + DA). This is within the overall ceiling of Rs. 1.50 Lacs under Sec. 80 CCE of the Income Tax Act.
  2. On Employer’s contribution: Tax deduction under section 80CCD (2) is allowed up to 10% of Basic & DA (no upper ceiling). This rebate is over and above 80 C.
  3. Exclusive Tax Benefit: Subscriber will be allowed tax deduction in addition to the deduction allowed under Sec. 80CCD(1) for additional contribution in his NPS account subject to maximum of Fifty Thousand Rupees (Rs. 50,000/-) under sec. 80CCD 1(B) as given in Budget 2015-16.
8. Rules of Withdrawal: NPS has very strict rules for withdrawal  and corpus can not be taken out before the age of 60. with effect of 10th Jan 2018 the PFRDA has relaxed the rules of withdrawal now you can withdraw up to 25 percent of  the contributions from the 3rd year of joining NPS.

The PFRDA has also set the purpose of withdrawal which includes treatment of a family member for an illness specified, children’s education, children’s wedding expenses and purchase or construction of a house.

Withdrawal from scheme is allowed for a maximum of 3 time during the entire period of NPS Subscription.
Some categories of withdrawal that are allowed under National Pension Scheme has been given in PFRDA Exit Rules.
  1. Normal Superannuation: You are required to purchase the annuity plans from the Government authorized agencies, upon attaining your retirement age, for at least 40% of the accumulated pension wealth. The balance 60% amount can be withdrawn using one of the two options: lump sum or installments. However, if the total corpus amount is less than Rs 2 lakhs in your account on the date of your retirement (for government sector) or 60 years of age (non-govt. sector), you can opt for a complete withdrawal.
  2. Death: The Total accumulated pension (100%) will be paid to your nominee or legal heir and there wouldn’t be a need for purchase of an annuity or a monthly pension.
  3. Exit before the age of Normal Superannuation: You will have to utilize at least 80% of the accumulated pension wealth for the purchase of annuity providing your monthly pension and the balance amount will be paid to you as a lump sum.
In order to ensure timely exit/withdrawal from scheme, CRA sends communication to the subscriber & Nodal office 6 month before the date of superannuation/attainment of 60 years to start the process of the withdrawal claim in the CRA system and generates a Claim ID for each claim request.

9. How to raise online withdrawal claim under NPS:
  1. The online withdrawal or NPS Amount process can be initiated in either of the two ways:
    1. By subscriber using User ID & IPIN: The subscriber can directly initiate withdrawal application within a period of 6 months before the age of superannuation/vesting date opted by subscriber using subscribers User ID & IPIN in the CRA system. While processing the request in the system, the subscriber needs to provide details such as lump sum % of withdrawal, annuity % share details, Annuity Service Provider details, Bank details, Nomination details etc.
    2. At Nodal Office/POP/Aggregator end: In case subscriber is didn't initiate the request directly into the system or not able to do so, the withdrawal application can be initiated by the concerned Aggregator or Nodal Office/ POP in the CRA system using their respective logins. The subscriber is required to submit the physical withdrawal form along with the supporting documents such as Identity & Address Proof, Bank details etc. to the Nodal Office.
  2. All death claims shall directly be initiated by Nodal Office/POP/Aggregators through their respective logins in CRA system.
  3. The Nodal Office shall verify the Withdrawal Request Form has been properly filled and check whether all KYC documents have been submitted by the subscriber/claimant. The request will be initiated and authorized by the Nodal Office after such verification is carried out.
  4. After authorisation of the request in CRA system, the Nodal Office/POP/Aggregator shall forward the withdrawal application form and supporting documents received from subscriber to CRA.
10. Annuity under NPS : Last but not least Annuity in the context of NPS refers to the monthly payment that will be received by the subscriber from the Annuity Service Provider after his exit from NPS. Annuity Service Provider (ASP) is an IRDA registered insurance company empaneled by PFRDA for providing of Annuity Services to NPS subscribers upon their exit from the system. Annuity Service Providers will be responsible for managing the funds (allocated for buying annuity) and payment of the pension after a subscriber attains the age of 60. Pension Fund Regulatory and Development Authority (PFRDA) has empaneled the following seven IRDA approved life insurance companies for providing annuity services to the subscribers of the National Pension System (NPS).

Annuity is compulsory for the NPS Subscribers to purchase an annuity product from empaneled ASPs at the time of Superannuation and Pre-mature exit. The Subscriber selects the ASP at the time of submitting the withdrawal request or after the payment of Lumpsum withdrawal (maximum 60% & 20% can be withdrawn in case of Superannuation & Pre-mature Exit respectively).


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Saral Tax India | सरल टैक्स इंडिया: What is NPS and its Benefits
What is NPS and its Benefits
Saral Tax India | सरल टैक्स इंडिया
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