The National Pension System (NPS) is a voluntary, defined contribution pension scheme launched by the Government of India in 2004. The scheme is designed to provide retirement income to all citizens of India, including the unorganized sector.
NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and the funds are managed by Pension Fund Managers (PFMs) appointed by PFRDA.
The NPS is a market-linked investment option, which means that the returns are dependent on the market performance. The NPS scheme offers tax benefits to you, making it an attractive investment option for those planning for their retirement.
Pension Fund Manager (PFMs) Under NPS
Your contributions are managed by the PFMs who are appointed by PFRDA and are governed by regulatory guidelines. You have complete flexibility to choose any of the following 10 PFMs:
- Aditya Birla SunLife Pension Management Limited
- Axis Pension Fund Management Limited
- HDFC Pension Management Company Limited
- ICICI Prudential Pension Funds Management Company Limited
- Kotak Mahindra Pension Fund Limited
- LIC Pension Fund Limited
- Max Life Pension Fund Management Limited.
- SBI Pension Funds Private Limited
- Tata Pension Management Limited.
- UTI Retirement Solutions Limited
How NPS Works
After a successful enrollment under NPS, the Permanent Retirement Account Number (PRAN) is allotted to you. Once the PRAN is generated, NSDL-CRA (Central Record Keeping Agency) sends an email and SMS alert to your registered email ID and mobile number.
You can contribute periodically and regularly towards NPS during your working life to create a corpus for retirement.
When you retire or exit the scheme, you will receive the corpus, but a portion of it must be invested in an annuity to provide you with a monthly pension after retirement or exit.
Eligibility for Investing in NPS Online
To invest in NPS online, you must be an Indian citizen between the ages of 18 and 70 years. You should also have a valid PAN card and Aadhaar card. Non-Resident Indians (NRIs) are also eligible to invest in NPS, subject to regulatory requirements as prescribed by RBI and FEMA from time to time.
However, OCI (Overseas Citizens of India), PIO (Person of Indian Origin), and HUFs are not eligible to apply for NPS accounts.
Why Invest in NPS
Investing in NPS is essential for retirement planning. With the NPS, you can save for your retirement and ensure a steady stream of income after you retire.
Additionally, investing in NPS offers tax benefits.
You can claim tax deductions of up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act, and an additional deduction of up to Rs. 50,000 under Section 80CCD(1B). This can help you save on your tax liability and increase your savings.
Moreover, NPS offers a range of investment options to choose from, including equity, debt, and government securities. This means that you can customize your portfolio according to your risk appetite and investment goals.
The returns on NPS are market-linked and depend on the performance of the underlying assets, which means that you have the potential to earn higher returns than traditional fixed-income investments.
Investment Options in NPS
The NPS offers two investment options –
- Active Choice
- Auto Choice
#1. Active Choice
You can choose your asset allocation by voluntarily distributing your investments in 4 different asset classes such as
- Equity (E): This is a high-risk, high-return investment option where the funds are primarily invested in equity. You can allocate up to 75% of your investment to equity.
- Government Securities (G): Funds are invested in Government Securities.
- Corporate Bonds (C): Funds are invested in fixed income bearing debt instruments.
- Alternate Assets (A): Funds are invested in real estate and infrastructure funds. You can invest a maximum of 5% in alternate assets since it is considered an extremely risky investment.
#2. Auto Choice
If you don’t select ‘Active Choice’, your contribution funds will be invested in a pre-defined proportion based on your age. The allocation in equity is higher at a younger age and decreases progressively to balance high, medium, and low-risk investments.
Auto Choice offers three pre-defined options:
- LC 75 (Aggressive)
- LC 50 (Moderate)
- LC 25 (Conservative)
LC stands for Life Cycle, and the number represents the maximum equity exposure. Your investment pattern will depend on your age and risk appetite.
If you choose Auto Choice LC 75 (Aggressive), your equity exposure is maximum at 75% till the age of 35. As you grow older, the equity exposure automatically decreases and the debt investment (Government Security and Corporate Bonds) automatically increases.
Before investing in NPS, you need to open an NPS account.
Types of NPS Account
When you open an NPS account, a Permanent Retirement Account Number (PRAN) is allotted to you, which remains the same throughout your life. This PRAN is unique and cannot be transferred to anyone else.
You can use this PRAN to invest in your NPS account online through the NPS website or the mobile application.
There are two types of NPS accounts – Tier I and Tier II.
#1. Tier I Account
Tier I account is a mandatory account for investing in the NPS scheme. This account is primarily designed for retirement planning and has a long lock-in period.
You cannot withdraw the funds from this account until you reach the age of 60 years. In case of any financial emergency, you can withdraw up to 25% of your contributions after completing three years of investment.
#2. Tier II Account
Tier II account is a voluntary account that allows you to invest and withdraw money as per your needs.
Unlike the Tier I account, there is no lock-in period for this account, and you can withdraw the funds anytime you want. However, you cannot claim any tax benefits for investing in a Tier II account.
NPS Account Opening Contribution:
|Particulars||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|
How to Open NPS Account Online
Here are steps to follow to open an NPS account online:
Step #1. Visit the official NPS website “enps.nsdl.com.”
Step #2. Click on “National Pension System > Registration” from the drop-down list.
Step #3. Fill out the required details. Make sure you upload the scanned copy of your signature, a passport-size photo, and a cancelled cheque. You must have a bank account number with the netbanking facility enabled.
Step #4. Then click on OTP which is sent to your registered mobile number or email ID.
Step #5. You need to make an initial contribution of min. Rs. 500.
Step #6. On successful payment, you will receive a 12-digit Permanent Retirement Account Number (PRAN) and a registration acknowledgement number on your registered email ID and mobile number.
Step #7. Once the registration process is completed, your NPS account will be activated.
How to Invest in NPS Online in India
You can make a contribution to your NPS account through online and offline.
#1. Invest in NPS Online Through NPS Website
Here are the steps to contribute online via the eNPS website:
Step #1. Visit the eNPS website at https://enps.nsdl.com.
Step #2. Click on the ‘Contribution’ tab. If you are contributing through NPS account Log-in, select ‘Contribute Online’ under the ‘Transact Online’ tab. You will be redirected to the eNPS portal.
Step #3. Enter your Permanent Retirement Account Number (PRAN) and Date of Birth.
Step #4. Choose the option “SMS/email” on which you wish to receive the OTP to verify your PRAN.
Step #5. Then, enter the captcha as displayed and click on ‘Verify PRAN’. An OTP will be sent to the registered mobile number/email address (whichever is selected).
Step #6. Once the PRAN is verified, choose the account to which the contribution will be made (Tier I or Tier II), and mention the contribution amount.
Step #7. After entering the contribution details, the system will calculate the total amount payable after adding applicable charges are:
- Credit Card – 0.90% of Transaction Amount + Service Tax.
- Debit Card – 0.80% of Transaction Amount + Service Tax.
- Net Banking – 60 Paisa per Transaction + Service Tax.
Step #8. Select the payment gateway option, read and accept the declarations, and click on ‘Make Payment’.
Step #9. You will be redirected to the payment gateway site, from where you can contribute through net banking/debit card/credit card.
#2. Invest in NPS Online via NPS Mobile App
Steps to Contribute using Mobile App:
Step #1. You need to download the “NPS” mobile app from google play store.
Step #2. You can do the contribution transaction even without logging in to the App
Step #3. Enter your Permanent Retirement Account Number (PRAN), date of birth, captcha and click on ‘Verify PRAN’
Step #4. An OTP will be sent to the registered mobile number / email address.
Step #5. After your PRAN is verified, select the account to which contribution will be made (Tier I or Tier II) and mention the contribution amount.
Step #6. After entering the contribution details, the system will calculate the total amount payable after adding applicable charges.
Step #7. Select the payment gateway option, read and accept the declarations and click on ‘Make Payment’.
Step #8. You will be redirected to the payment gateway site, from where you can contribute through net banking/debit card/credit card.
#3. Invest in NPS Through Visiting the Nearest POP (Point of Presence)
Here are steps to contribute through POP-SP
Step #1. You need to download the NPS Contribution Instruction Slip (NCIS).
Step #2. Fill the required details in the form.
Step #3. Submit the same to the POP-SP (Point of Presence – Service Providers) along with Cheque / DD.
Step #4. After submitting the form, the POP-SP will give you an acknowledgement receipt, which you can use for tracking of contribution.
Things to Keep in Mind While Investing in NPS Online
- NPS is a long-term investment: NPS is a retirement-focused investment option. Therefore, it’s important to keep in mind that it’s a long-term investment. You won’t be able to withdraw your money until you retire, except under certain circumstances like critical illness or death.
- Choose the right investment option: Choosing the right investment option is crucial when investing in NPS. Make sure you understand the two investment options available and choose the one that best suits your needs.
- Keep an eye on the fund manager’s performance: The fund manager’s performance can have a significant impact on your NPS investment returns. Keep an eye on the fund manager’s performance and switch to a different fund manager if necessary.
NPS Tax Benefits
Investing in the National Pension System (NPS) offers tax benefits to individuals under different sections of the Income Tax Act, 1961.
Here are the tax benefits of investing in NPS:
#1. Tax Deduction under Section 80C
Investments made in the Tier I account of NPS are eligible for a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. This deduction is available to all individuals, including self-employed individuals, Hindu Undivided Families (HUFs), and employees.
For Salaried Individuals: Salaried individuals can claim a tax deduction of up to 10% of their salary (Basic + Dearness Allowance) contributed towards NPS under Section 80CCD (1). The maximum deduction that can be claimed under this section is Rs. 1.5 lakh, which is inclusive of the deduction available under Section 80C.
For Self-Employed Individuals: Self-employed individuals can claim a tax deduction of up to 20% of their gross income (including professional fees) contributed towards NPS under Section 80CCD (1). The maximum deduction that can be claimed under this section is also Rs. 1.5 lakh, which is inclusive of the deduction available under Section 80C.
#2. Additional Tax Deduction under Section 80CCD (1B)
Investments made in NPS up to Rs. 50,000 are eligible for an additional tax deduction under Section 80CCD (1B) over and above the limit of Rs. 1.5 lakh available under Section 80C. This deduction is available to both salaried and self-employed individuals and not to HUFs.
#3. Tax Exemption on Partial Withdrawal
NPS allows you to make partial withdrawals from your Tier I account for specific purposes such as higher education, marriage, and buying a house.
The amount withdrawn is exempt from tax up to a limit of 25% of self-contribution, subject to the criteria and circumstances prescribed by PFRDA under section 10(12B).
#4. Tax Exemption on Annuity Received
You are eligible for tax exemption on the purchase of an annuity upon attaining the age of 60 or superannuation under Section 80CCD(5) of the Income Tax Act. However, the subsequent income received from the annuity is subject to tax under Section 80CCD(3).
#5. Tax Exemption on Lump Sum Withdrawal
You are eligible for tax exemption on a lump sum withdrawal of 60% of accumulated pension wealth upon attaining the age of 60 or superannuation under Section 10(12A) of the Income Tax Act.
#6. Tax Benefits to Corporates/Employers
Corporates/employers are eligible for tax deductions on the amount contributed towards the NPS account of their employees under Section 36(1)(iv)(a) of the Income Tax Act.
The employer’s contribution is eligible for a tax deduction of up to 10% of the salary (Basic + DA) as a business expense from the Profit & Loss Account.
NPS Withdrawal Rules
At the time of retirement, you can withdraw up to 60% of the corpus as a lump sum, while the remaining 40% must be used to purchase an annuity. If the corpus value is less than or equal to Rs. 5 lakh, you can withdraw the entire corpus as a lump sum.
If you retire before the age of 60 years, you can withdraw only up to 20% of the corpus as a lump sum, and the remaining 80% must be used to purchase an annuity. You also have the option to withdraw the entire amount if the corpus value is less than or equal to Rs. 2.5 Lakhs or lower.
However, you can opt for a partial withdrawal of up to 25% of your corpus after completing three years of investment.
By investing in NPS, you can save for your future and secure a steady stream of income post-retirement. With the online platform and easy accessibility, managing your NPS account has become simpler and more convenient.
- PRAN card has not been received by the subscriber but has been allotted.
- Withdrawal amount has not been received.
- PRAN has been partially allotted or not allotted.
You can add a maximum of three nominees to an NPS account.
Yes, you can add nominees to your NPS account.
The interest rate of NPS is not fixed and varies according to the performance of the underlying investments made by the Pension Fund Managers (PFMs).
The interest earned on the contributions made towards NPS is market-linked, and the final returns depend on the returns generated by the PFMs on their investments.
The historical average return on NPS investments has been around 9-12% per annum, but the actual returns can vary depending on various factors such as market conditions, investment strategy, and economic environment.
- You can contact the NPS call center number 1800 110 708.
- NPS SMS Number: NPS to 56677
- NPS Toll-Free Number For Registered Subscriber (with PRAN): 1800 222 080
No, you can not open multiple NPS accounts. However, you can have one account in NPS and another account in Atal Pension Yojna.
Yes, investing in NPS online is safe. The online platform is secure and uses encryption to protect your personal and financial information.
The NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which ensures that the scheme follows the rules and guidelines laid down by the government.