The National Pension System (NPS) is an Indian federal government-sponsored pension and investment plan aimed at safeguarding Indian residents as they grow older. It is a pure retirement pension plan in which you can receive a steady income with tax benefits after you retire, and with a small amount of optional risk, you can significantly boost your profits.

The National Pension Scheme (NPS) is a low-cost pension scheme that is professionally managed by pension funds licensed by the Pension Fund Regulatory and Development Authority of India (PFRDAI).

Let’s have a look at how it works.

Who can avail National pension scheme?

Except for individuals who work in the Armed Forces, the National Pension Scheme, also known as the National Pension System, is open to all employees in the public, private, and unorganized sectors. Subscribers to the NPS system can make a minimum annual contribution of Rs.6,000, which can be paid as a lump amount or in monthly instalments of Rs.500.

The contributions of subscribers to the NPS system are invested in market-linked instruments such as debt and equities, and the returns are based on the performance of these assets. The current NPS interest rate on contributions is between 8% and 10%.

The National Pension Scheme account can be opened by any Indian citizen between the ages of 18 and 60. The National Pension Scheme, which is regulated by PFRDA, matures at the age of 60 and can be extended up to 70 years. After three years of account opening, subscribers can take a partial withdrawal of up to 25% of their contribution for particular reasons such as acquiring a property, funding a child’s education, or treating critical illnesses.

Benefits of National pension scheme

  • Comfort and flexibility:

NPS allows investors to contribute any amount at any time that is convenient for them. There is no limit to the amount of money that can be invested.

  • Self-employed husband-and-wife teams can enrol:

Self-employed husband-and-wife teams can register separate NPS accounts and take advantage of the tax benefits in their own right. When they decide to retire, they will have a larger corpus and pension.

  • Employee’s loyalty booster:

NPS can be offered by an employer to its employees to build loyalty for the enterprise they work with. Employees’ futures will be secured, and the employer will be able to claim such NPS contributions as business expenditures under Section 36 (1) (IVa) of the Income Tax Act.

  • Benefit from tax deductions:

NPS contributions made by self-employed professionals towards NPS can be claimed as deductions for tax purposes up to 20% of their gross annual income. Salaried NPS subscribers can additionally claim a tax deduction against the employer’s NPS contribution under Section 80 CCD(2), and an exclusive tax deduction of $50,000 is granted for NPS investments under Section 80CCD(1B).

Types of NPS account

  1. Account of Tier I

It’s a basic pension account with withdrawal restrictions.

  • Only 25% of the contribution can be taken before reaching 60 years of age, while the remaining 75% must be utilized to purchase an annuity from a life insurer.
  •  An annuity is a set of payments that are made at regular periods. Annuity plans entail the insurer paying the insured income at regular intervals until his death or the plan’s maturity.
  • After reaching the age of retirement (60 years), approximately 60% of the contribution can be withdrawn, with the remaining 40% being utilized to purchase an annuity from an approved life insurance.
  • Tier II of the NPS

NPS Tier II is a pure investment scheme that does not offer the same tax benefits as NPS Tier I. An open-ended mutual fund can be compared to this scheme.

  • When it comes to opening an NPS Tier II account, there are a few basic guidelines to follow. To begin an NPS Tier II plan, you must first complete an NPS Tier I plan. Subscribers can change from a Tier I to a Tier II plan at any time.
  • To open this account, you must deposit a minimum of INR 1000 and are free to make donations as you see fit. There are no obligations to deposit money on a yearly basis, and there is no cap on the amount of money a subscriber can contribute. It’s worth noting that deposits must be in multiples of INR 250. For instance, INR 500, 750, 1000, and so on.
  • The corpus is made available to the subscriber for withdrawal upon retirement or removal from the scheme, which is taxable, and any money gained from this account will be added to the subscriber’s yearly taxable income.
  • A subscriber to an NPS Tier II account is likely to receive interest in the range of: 14 to 15% of equity, corporate bonds have a yield of 9% to 10%., Government securities have a yield of 7% to 8%.

How to Sign Up for an NPS Account

The National Pension Scheme is governed by the Pension Fund Regulatory and Development Authority of India. To open an NPS account, the PFRDA provides both an online and an offline approach. Individuals can use the eNPS online platform or the offline approach to register for the NPS system and get a subscription. Let’s look at how to sign up for an NPS account.

In online

A person can now open an NPS account in a straightforward and painless manner. It is necessary to link the account to the PAN, Aadhaar, and mobile number in order to register an NPS account online. Let’s have a look at how to open an online NPS account.

  • Visit the enps.nsdl.com webpage.
  • Choose between the two types of subscribers: ‘business subscriber’ and ‘individual subscriber.’
  • Select the proper status for your residence. “India Citizens” and “NRI” are two options.
  • It is required for long-term savings to select either Tier I account type or both accounts.
  • Fill up the PAN information and select a POP or bank.
  • Select’register with Aadhaar’ from the registration drop-down menu.
  • Enter your Aadhaar number and select the ‘create OTP (One Time Password)’ option.
  • The registered mobile number will receive an OTP.
  • Fill in the OTP, as well as your personal information, bank account information, and nomination information.
  • The Permanent Retirement Allotment Number (PRAN) will be assigned to the applicant once the application form has been properly submitted.
  • An OTP will be issued to the registered mobile number once the individual submits the e-signature and photograph.
  • To verify the signature and complete the transaction, enter the OTP.
  • Once you’ve been routed to the payment gateway, proceed to make a net banking payment for the required charges.
  • The permanent retirement account number will be assigned after the payment is completed successfully.

In Offline

To open an NPS account manually or offline, an individual must first locate a Point of Contact. The individual must obtain a subscriber form at the nearest POP and submit it along with the completed KYC documents. The point of presence will issue you a Permanent Retirement Account Number once the individual has made the initial investment (PRAN). The sealed welcome kit contains the PRAN number and password that will assist the individual in operating the account. A one-time registration fee of Rs.125 is required to register an NPS account via the offline approach.

To finish the procedure, the NRIs must complete a few more stages.

  • Select the bank account’s repatriable or non-repatriable status.
  • Along with a scanned copy of the passport, provide the details of the NRE or NRO bank account.
  • Select a suitable communication address, such as an international location or a permanent address.
  • After receiving the permanent retirement account number (PRAN), the applicant must complete the authentication process.
  • To use the e-sign option, the applicant must go to the E-sign/ print & courier page and select the e-sign option.
  • Authenticate using the one-time password (OTP) sent to the registered mobile number. It’s important to note that the phone number should be linked to your Aadhaar card.
  • The registration form has successfully signed after Aadhaar authentication.
  • It’s worth noting that NRIs will be charged a service fee for e-signing the registration form.

To open a National pension system (NPS) at the comfort of your home get in touch with Phoenixtax- Tax consultant in Chennai.