What is NPS or National Pension Scheme?
The acronym NPS stands for National Pension Scheme. It is a retirement pension planning product by the central government and the PFRDA (Pension Fund Regulatory and Development Authority).
Under this scheme, an individual can contribute a fixed amount to their pension account at regular intervals to prepare for retirement. The NPS can invest in various asset classes such as equities, corporate bonds, government securities and alternative asset classes. After retirement, the NPS participant can withdraw a fixed amount as a lump sum and the remaining amount as a monthly pension.
Those who regularly contribute a fixed amount to the NPS account can better prepare for their financial needs in retirement.
Earlier, the NPS was only available to central government employees, but now it is open to all Indian citizens. It is a voluntary scheme and any public or private sector employee who wants to plan for retirement can contribute to the NPS.
Among the numerous retirement products such as PPF, Life insurance pension plans, Atal Pension Yojana, NPS is proving to be the most effective retirement solution which offer higher returns than other retirement products and also offers tax benefits of upto Rs 1.5 lakh.
NPS has two types of accounts, a Tier 1 account and a Tier II account.
On the dashboard, click on NPS.
Enter the parent's name you want to be on your PRAN (Permanent Retirement Account Number).
Enter your marital status and spouse’s name.
Enter heard about NPS from? And occupation.
Add nominee’s name, date of birth, and percentage of allocation and tap on continue.
Select your choice of pension fund house.
Select your investment choice as Auto or Active.
Select an investment plan as Aggressive, moderate or conservative.
The investment plan decides your asset allocation into equity, corporate bonds, and government securities.
Enter the investment amount and tap on continue.
Enter the 6-digit OTP and click on verify.
Complete the payment using UPI or net banking.
Upon successful payment, your investment is NPS is done.
Bank details have to be verified to open a NPS account. To do so, create a ticket and attach a latest 6 months bank statement or a cancelled cheque of the primary bank account.
NAV applicability on investment in NPS depends upon the NPS order placement date and time. Check out the NAV applicable rules for investment;
A subscriber cannot withdraw the money invested in the NPS before reaching the retirement age of 60 years. Read the PFRDA rules for the withdrawal of money from the NPS account.
At maturity when NPS subscriber reaches 60 years
The maturity term of the NPS account is 60 years. Once an NPS participant reaches the age of 60, 60% of the corpus is withdrawable as lumpsum, and the remaining 40% in the form of an annuity. The annuity provides the NPS recipient with a regular payment to cover expenses after retirement.
If the NPS retirement corpus is less than Rs 5 lakhs, the subscriber can withdraw 100% or the entire NPS capital as lump sum.
Under certain conditions, a partial withdrawal from the NPS pension account is also possible. If you have completed 3 years as an NPS subscriber, you can partially withdraw the money from the pension account for certain purposes including;
Purchase and construction of the first house
Medical emergency for specified illnesses such as cancer, kidney failure, etc.
For medical and incidental expenses arising from disabilities
For skill development of NPS subscriber
To establish a new venture or startup by NPS account holder
An NPS holder can withdraw upto 25% of the total deposits made to the NPS account. Suppose you have been an NPS subscriber for at least 3 years and have invested a total of 5 lakhs in your retirement account and your balance has grown to 7 lakhs.
As per PFRDA rules, you can withdraw 25% of the total contribution of 5 lakh, i.e. Rs 1,25,000. The balance of Rs 7 lakh is not eligible for partial withdrawal.
Partial withdrawal from the NPS account is possible three times during the NPS tenure. Also, there must be an interval of 5 years between two partial withdrawals. In subsequent withdrawals, 25% of the additional contributions made after the previous withdrawal is allowed.
Early or premature exit or voluntary retirement before the age of 60 years is also possible under several conditions;
The subscriber must have completed 5 years of NPS subscription.
The subscriber must purchase an annuity for at least 80% of the accumulated pension capital and 20% of the capital is paid out as a lump sum.
If the total annuity capital is 2.5 lakhs or less, the entire amount can be withdrawn as a lump sum.
Exit upon NPS Subscriber’s death
If the NPS subscriber dies, the entire capital (100%) is paid to the nominee or legal heirs if the total capital is up to 5 lakhs. However, the nominee has the option to opt for a pension plan.
If the NPS balance is more than Rs 5 lakhs, 20% is paid as a lump sum, and 80% of the pension wealth are used to buy an annuity.
NPS is a tax-exempt pension product. Yes, investment in the NPS offers tax benefits of upto Rs 1.5 lakhs under Section 80C.
There is also an additional tax deduction of Rs 50,000 is offered under Section 80CCD. So, in total, NPS subscribers can claim a tax deduction of upto Rs 2 lakhs for NPS investments in a year.
On retirement, you can get 60% of the total retirement capital as a lump sum, which is tax-free. The remaining 40% is paid out as a pension or annuity to cover regular expenses post-retirement.
A partial withdrawal of 25% of the total NPS investment is also tax-free.
Frequently Asked Questions
On the coin dashboard, go to NPS.
Click on the Portfolio tab.
Here all your NPS contributions will be displayed.
No, Investment in NPS schemes cannot be pledged to get collateral margin.
The pension fund manager collects NPS contributions from subscribers and invests them across asset classes like equity, corporate bonds, and government securities.
Auto and Active investment choices are the two ways of asset allocation in the NPS scheme.
Auto Choice: In this option, asset allocation is set automatically based on NPS subscriber’s age and risk appetite (Aggressive, moderate, or conservative).
Active Choice: NPS subscribers can set exposure to different asset classes under several conditions:
Maximum allocation to equity asset class cannot exceed 75%.
Maximum exposure to corporate bonds and government bonds is 100%.
Maximum allocation to alternative asset like REIT (Real Estate Investment Trusts), InvIT (Infrastructure Investment Trusts), AIF (Alternative Investment Funds), and mortgage-backed securities is 5%.
All investments made in your NPS pension account can be tracked in the Statement of Transactions.
Under the statement of transactions (SOT), select date range.
You will get the Statement of Transactions from Kfintech on your registered email address.
Use your PRAN number to view the SOT details.
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