What is the National Pension System (NPS?)
The central government introduced the NPS, a contributory pension scheme, in January, 2004. Initially, it was meant only for government employees, but later it was opened to all Indian citizens in 2009. The NPS helps an individual invest regularly in a pension account while he is working. The individual can take a part of the accumulated fund in the NPS as a lump sum and use the balance amount to buy an annuity from a life insurance company for a regular income after his retirement.
Who can join the NPS?
Any Indian between 18 and 60 years can join the scheme. However, the person must comply with the Know Your Customer (KYC) norms.
Can a person get out of the NPS before 60?
Yes, but the person can withdraw only 20 per cent of the corpus in a lump sum. He should use 80 per cent of the corpus to buy an annuity from a life insurance company approved by the Pension Fund Regulatory and Development Authority (PFRDA), the regulator for the NPS.
What is a Tier I account?
NPS offers two types of accounts: Tier I and Tier II. A subscriber can contribute his savings, including the contribution from his employer, for retirement into a non-withdrawable Tier I account. Tier II account, on the other hand, is a voluntary savings account and subscribers are free to withdraw the money from it whenever they want. An active Tier I account is a must to open a Tier II account.
What are the investment choices under the NPS?
The NPS offers two choices: Active and Auto. The Active choice offers three individual funds: Asset Class E (invests predominantly in equity), Asset Class C (invests in fixed income instruments other than government securities) and Asset Class G (invests only in government securities). An individual can invest his entire investment in one of these funds or opt for a combination of them. The Auto choice offers a life-cycle fund, which decides the investment allocation depending on the age of the individual. The allocation to equity and fixed income comes down and the proportion of government securities in the portfolio goes up with the advancing age of the subscriber.
Can I change the investment choice?
Yes, a subscriber can change the investment choice (scheme preference, in the NPS lingo) once in a financial year for both Tier I and Tier II accounts.
What are the tax benefits available for the NPS?
An employee's own contribution is eligible for tax deduction of up to 10 per cent of his salary (basic + DA) under Section 80CCD(1) within the overall ceiling of ₹1.5 lakh under Section 80 CCE. The employee is also eligible for tax deduction of up to 10 per cent of his salary (basic + DA) contributed by the employer under Section 80CCC(2) over and above the limit of ₹1.5 lakh provided under Section 80CCE. Self-employed individuals are eligible for tax deduction of up to 10 per cent of gross income under Section 80CCD(1) within the overall ceiling of ₹1.5 lakh under Section 80CCE. An additional deduction for NPS contributions up to Rs 50,000 is also available under Section 80 CCD (1B).
How much can I contribute?
A subscriber should make her first contribution at the time of applying for registration at any point of presence (POP) or POP service provider (POPSP). A subscriber should fill the NPS contribution instruction slip and invest a minimum amount of ₹500 at the time of opening a Tier I account. The subscriber should make a minimum contribution of ₹1,000 at the time of opening a Tier II account, and she should make at least one contribution every year and maintain a minimum balance of ₹2,000 at the end of the financial year.
If the subscriber fails to contribute the minimum amount in a year, the account will become dormant. The subscriber will have to submit the form UOS-S10 to the POPSP, along with a penalty of ₹100 and a minimum contribution of ₹500, to reactivate the account. The dormant account will be closed if the account value falls to zero.
What happens to the money if the scheme is discontinued?
If a subscriber discontinues her investments, the account will be frozen and can be reactivated only by paying the penalty along with the minimum contribution. However, if a subscriber wishes to exit from the NPS before attaining the age of 60, she can withdraw up to 20 per cent of the sum accumulated till that point of time. The subscriber has to buy an annuity with the rest of the money.
How do I enroll in the NPS?
You should submit the filled-out composite application form for subscriber registration with supporting KYC documents to the POPSP to open a permanent retirement account (PRA). To open a Tier II account, the individual should submit a copy of the permanent retirement account number (PRAN) card along with the Tier II activation form. You should also make the first contribution (a minimum of ₹500 for Tier I and ₹1,000 for Tier II) at the time of applying for registration. The initial contribution is optional in the case of companies. Application form for registration can be downloaded from www.npscra.nsdl.co.in.
You can also enroll into the NPS online through enps.nsdl.com. You can do so either by using your Aadhar number or through your PAN number and online banking (your bank account and PAN number must be linked) if your bank is enrolled with the NPS. You can check this on enps.nsdl.com.
How much time does it take to complete the registration?
Once the registration is submitted to a POPSP, it is forwarded to a CRA (central record-keeping agency) facilitation centre (CRAFC). Once the PRAN is generated, the PRAN card is printed and dispatched within 20 days from the date of receipt of the duly filled registration form.
How can I register a complaint?
A subscriber can raise her grievance through a call centre or through https://www.npscra.
How to withdraw money from the NPS? What will be the tax?
If you are withdrawing the money at your retirement at 60 years, you have the option to withdraw 40 per cent of the accumulated corpus tax-free. At least 40 per cent of the accumulated corpus must be used to buy an annuity. The remaining 20 per cent can be either withdrawn (it will be taxed as per the Income Tax slab applicable to the subscriber) or use it to buy an annuity. The annuity allocation is not taxed. But the pension derived from the annuity will be taxed as income. If the total corpus is below ₹2 lakh, it can be withdrawn entirely. While exiting from the NPS before 60 years, one can withdraw only 20 per cent of the corpus as a lump sum and one must use 80 per cent of the corpus to buy an annuity.
How would I know about the PRAN?
Once the PRAN is generated, an email alert and an SMS alert are sent. For security reasons, only the last four digits are mentioned in the alert. Subscribers can know the PRAN on receipt of the PRAN kit or they can also approach their POPSP for the PRAN. The subscriber can also check the status by accessing the CRA website, https://cra-nsdl.com/CRA/, by using the seventeen-digit receipt number provided by the POPSP or the acknowledgement number allotted by the CRAFC at the time of submission of application forms by the POPSP.
For online enrollment, the PRAN is generated instantaneously. For offline account opening, once the registration is submitted to a POPSP, it is forwarded to a CRA (central record-keeping agency) facilitation centre (CRAFC). Once the PRAN is generated, the PRAN card is printed and dispatched within 20 days from the date of receipt of the duly filled registration form.
What is an exit claim ID?
The CRA generates a claim ID six months before a subscriber turns 60. It informs the subscriber about the generation of the claim ID. POP/POPSP can also view claim IDs generated on the CRA site. For premature exit and death cases, the claim ID will be generated by the associated POPSP or CRA when the withdrawal request is received.
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