National Pension System (NPS) is a retirement benefit Scheme introduced by the Government of India to facilitate a regular income post-retirement to all subscribers. PFRDA (Pension Fund Regulatory and Development Authority) is the governing body for NPS.
BENEFITS OF NPS
- Tax Benefits: NPS offers triple tax benefits which are as follows:
| Tax benefits for Salaried Individual | Tax Benefits for Self-Employed Individual |
| You can claim tax exemption up to Rs. 50,000 under section 80CCD (1B). This benefit is over an above limit of Rs. 1,50,000 under section 80C. | You can claim tax exemption up to Rs. 50,000 under section 80CCD (1B). This benefit is over an above limit of Rs. 1,50,000 under section 80C. |
| You may invest up to 10% of your basic salary + dearness allowance and claim tax exemption on the invested amount under section 80CCD (1). This tax exemption is subject to a limit of Rs. 1,50,000 under section 80C of Income Tax Act, 1961. | You may invest up to 20% of your gross annual income and claim tax exemption on the invested amount under section 80CCD(1). This tax exemption is subject to a limit of Rs. 1,50,000 under section 80C of Income Tax Act, 1961. |
- Economical: NPS is one of the lowest cost investment products available.
- Portability: NPS account or PRAN will remain same irrespective of change in employment, city or state.
- Flexibility: You have the flexibility to select or change the POP (Point of Presence), investment pattern and fund manager. This ensures that you can optimize returns as per your comfort with various asset class (Equity, Corporate Bonds, Government Securities and Alternate Assets) and fund managers.
- Regulated: NPS is regulated by PFRDA (Pension fund regulator under Ministry of Finance, Govt. of India.) which ensures transparent norms governing the activities. NPS Trust ensures adherence to the guidelines through regular monitoring.
- Voluntary: It is a voluntary scheme for all citizens of India. You can invest any amount in your NPS account and at any time.
- Superannuation Fund transfer: NPS account holders can transfer their Superannuation funds to their NPS account without any tax implication. (Post approval from relevant authorities)
TYPES OF NPS ACCOUNT
You have the option to open two sub accounts under the same Permanent Retirement Account Number (PRAN). These sub accounts are called as tiers in NPS:
- Tier I: It is also called as pension account. Contributions up to Rs. 50,000 made in this account are eligible for additional deduction from taxable income under section 80CCD (1B). This is over and above limit of Rs 1.5 lakhs- under section 80C. Withdrawals are restricted and subject to terms and conditions.
- Tier II: You can invest an additional amount in Tier II NPS account. Subscriber is free to withdraw his entire accrued corpus under Tier II at any point of time. In case you have not contributed even the initial contribution towards Tier II a/c, it will be automatically deactivated as per process. No tax benefits are available in this account. Funds from Tier II can be transferred to Tier I
Funds from Tier I can not be transferred to Tier II.
| NPS Account Opening Contribution: | Tier I | Tier II |
| Minimum Contribution required at the time of account opening | Rs.500/- | Rs.1000/ |
| Minimum Subsequent Contribution amount required | Rs.500/- | Rs. 250/- |
| Minimum contribution required per year | Rs.1000/ | NIL |
| Minimum number of contributions required in a year | 1 | NIL |
WHO CAN JOIN NPS
A citizen of India, whether resident or non-resident, subject to the following conditions:
Applicant should be between 18 – 60 years of age as on the date of submission of his/her application to the POP/ POP-SP.
Applicant should comply with the Know Your Customer (KYC) norms as detailed in the Subscriber Registration Form. All the documents required for KYC compliance need to be mandatorily submitted
INVESTMENT OPTION
You have the option to select fund allocation pattern for your investment across various asset classes vide exercising (i) Active Choice (ii) Auto Choice.
Active Choice: This option allows you the freedom to design the portfolio by voluntarily distributing investments among 4 asset classes as below:
- Equity (E): This is a 'High risk – High Return' option as the funds are invested in equity Subscriber can choose to invest up to 75% in this asset class.
- Corporate Bonds (C): Funds are invested in fixed income bearing debt instruments.
- Government Securities (G): Funds are invested in Government Securities.
- Alternate Assets (A): Funds are invested in real estate and infrastructure funds. Maximum capping is 5% investment since this is an extremely risky investment.
Auto Choice- Life Cycle Fund: In case 'Active Choice' as described above is not selected, the contribution funds will be invested in a pre-defined proportion depending on your age. The exposure will be higher in equity at a younger age and will be moderated progressively to get a balance among high, medium and low risk investment.
For example, allocation in equity till the age of 36 years is 50% in "E" , 30% in "C" and 20% in "G" asset class. After the age of 36, asset allocation starts decreasing from "E" and "C" and increases in "G" till it reaches 10% in "E" & "C" and 80% in "G" asset class.
You have three pre-defined option under Auto Choice,
- LC 75 (Aggressive)
- LC 50 (Moderate)
- LC 25 (Conservative)
You may select the Auto Choice investment option as per your risk appetite. LC stand for Life Cycle and the number represents the maximum equity exposure. Refer to the following table to understand your investment pattern as per your age.
If you choose Auto Choice LC 75 (Aggressive), till the age of 35 your equity exposure is maximum at 75%. As your age increases the equity exposures automatically decreases and Debt investment (Government Security and Corporate Bonds) automatically increases.
