NPS – National Pension Scheme Features and Benefits Analysis

Last updated on October 11th, 2023 at 04:04 pm

National Pension Scheme (NPS) is a Voluntary Pension Scheme introduced by Central Government for providing pension option to every Indian Citizen.

Thus NPS can be availed by any citizen including Central and State government employees and people who are working in unorganized sectors also eligible for this scheme.

Also NPS is monitered and regulated directly by Pension Fund Regulatory and Development Authority of India the Apex organisation for all Pension schemes in India.

Eligiblity

• Any Indian citizen both Resident and Non resident are eligible for NPS scheme.
• Age of the subscriber should be between 18 and 70.
• Any State and Central Government employee except Armed Forces can apply for NPS scheme.
• Person should by KYC compliant

Read Also: What is PPF -Public Provident Fund? Eligiblity & Benefits

How to Open NPS account

PFRDA gives option to open an NPS account through both Online and Offline mode. You need KYC i.e., Aadhar, PAN, Photograph and your present savings or NRI account details.

1. Offline Method

NPS account can be opened at any of the Point of Presence (PoP) of PFRDA. PoP includes public sector banks, selected private sector banks, Post offices and Insurance service providers.

So you can open NPS account at any branch of the PoP. But check for availability of NPS scheme in your bank in the official website before visiting the branch.

Thus to avail NPS scheme through PoP, get a subscription form from the PoP and submit your completely filled application form along with full KYC to the official.

You have to make an initial investment minimum of Rs.250 and there is a one time registration fee of Rs. 125 ^{*For offline mode} at the time of submitting application.

Then you will get a PRAN number within one or two days from the PoP. You can manage your NPS account with the PRAN number.

2.Online Mode

The online mode account opening is a simple and quick way to open an account.

The online application can be submitted at official NPS website https://enps.nsdl.com. Since your KYC will be verified with the OTP with the registered mobile number it saves time.

Also the PRAN number will be generated instantly when you submit your application.

Read Also: What is Atal Pension Yojana? Benefits of APY

Account Types

There are two types of NPS account Tier I and Tier II. One can open both the account and make a contribution to both the accounts.

Tier I Account

Tier I account is opened for retirement pension benefits.Hence withdrawal from this account is usually restricted under specific condition.

Also amount invested in Tier I account is having a tax benefits under 80C and 80CCD.

Tier II Account

The amount invested in Tier II account is not for retirement benefits. Since this is a voluntary deposit the amount can be withdrawn at any time.

But there is no tax benefit for the amount invested in Tier II Account.

Note: Tier II account can only be opened if you already availed Tier I Account.

NPS Contribution and Penalty

	NPS Tier I	NPS Tier II
Minimum Deposit during Account Opening	Rs. 500	Rs. 1000
Minimum Contribution	Rs. 500 per month or Rs. 1000 per annum	Rs. 250
Maximum Contribution	No Limit	No Limit

Penalty

If minimum contribution is not made to the NPS Tier I account the account will be frozen the same can be revived by paying minimum contribution of Rs. 500 for each year of default.

Tax Benefit

Tax Benefit to Employees

Employees can avail tax benefit for both his contribution and the contribution mad by his employer.

• Employees own contribution is eligible for tax deduction up to 10% of Salary (Basic + DA) under Section 80 CCD(1) (Maximum Rs. 1.5 Lakh under Section 80CCE)
• Employers Contribution is eligible for tax deduction up to 10% of Salary (Basic + DA) contributed by employer under Sec 80 CCD(2) (Above the limit of Rs. 1.5 Lakh under Section 80CCE)

Tax Benefit to Self Employed

• Self Employed persons are eligible for tax deduction of up to 20% of gross income under Section 80 CCD (1) (Maximum Rs.1.50 lakh under Section 80CCE)

Note: In both Employee and Self Employed contribution you can claim addition tax benefit   up to Rs. 50,000 under Section 80 CCD(1B)

Read Also: SSY-Sukanya Samriddhi Yojana Benefits and Details

NPS Withdrawal Rules

Amount invested in NPS scheme can be withdrawn upon the applicant reaching the Age of 60. Premature withdrawal to the account is also allowed on certain conditions.

1.Withdrawal at the age of 60

• If total amount accumulated at the age of 60 is less then are equal to 5 Lakh, he can with draw the full amount 100%.
• If total accumulated amount is more than 5 Lakh, then only 60% of the amount can be withdrawn. But the remaining 40% should be put in annuity that will provide monthly pension to the subscriber.

Note: The subscriber can postpone the withdrawal up to the age of 75. But the request for the same should be provided at least 15 days prior to completion of 60 years.

2.Premature Withdrawal

NPS subscriber can exit from the scheme before Maturity at any time. If the total Accumulated amount is less then Rs. 2.5 Lakh then 100% of the corpus can be withdrawn.

But 80% of the corpus should be invested in annuity for the regular pension of the subscriber, and the remaining 20% can be withdrawn prematurely.

3. Death of the subscriber

On death of the subscriber the entire corpus is paid to the nominee, Nominee can submit claim forms online for the withdrawal.

NPS Interst Rate/ Return

The amount deposited in NPS is invested in various assets like Equity, Corporate Bonds, Government Bonds and other Securities.

Thus the return on the amount is based on the performance of the securities in the market.

Hence it is not possible to forecast the return on investment or providing exact interest rate beforehand.

But experts believe NPS scheme can yield a return at 9-15% as per your risk appetite. And the Past results are reflecting the same.

Conclusion

NPS is a long term investment plan to make your retirement life better. You can choose various options and portfolios as per your risk appetite and investment moto in the NPS scheme.

As the investments are regulated by PFRDA the charges and commissions are less compared to other direct investment schemes like Equity and Mutual Fund.

Also now it became easier to operate your NPS account through online mode. Hence it is a good option of investment for everyone but definitely a great opportunity for the employees who do not have a job with secured pension.