The NPS is a financial security instrument launched by the Government for the citizens of India. This voluntary saving scheme has restricted withdrawal options and encourages subscribers to invest towards their retirement fund through systematic savings during their employment. The NPS is regulated by the PFRDA and follows transparent investment norms; offering subscribers stable and reasonable returns on their long-term investments. The NPS account is operable from anywhere in the country and eligible for tax benefits under Section 80C of the Income Tax Act.
The NPS has two account options:
Tier-I regular pension account
The Tier-I account is a regular retirement account. It is a default account with
restrictions on withdrawal. It can be opened under the NPS(Central Govt), NPS (State Govt), NPS (Corporate) and NPS (All Citizens Models).
This account matures at the age of 60, but can be extended till the age of 70, and individuals are required to deposit a minimum of Rs1,000 per annumto keep the account active. However, there is no upper limit on contribution amount. The Tier-I account carries a tax deduction under Section 80C up to Rs 1.5 lakh per annum and up to Rs 50,000 per annumunder Section 80CCD (1B). Upon maturity, it is mandatory to use 40 percent to buy an annuity, upon maturity. The rest 20 percent could be used to purchase an annuity from approved life insurers or could be withdrawn after paying tax.
This account matures at the age of 60, but can be extended till the age of 70, and individuals are required to deposit a minimum of Rs1,000 per annumto keep the account active. However, there is no upper limit on contribution amount. The Tier-I account carries a tax deduction under Section 80C up to Rs 1.5 lakh per annum and up to Rs 50,000 per annumunder Section 80CCD (1B). Upon maturity, it is mandatory to use 40 percent to buy an annuity, upon maturity. The rest 20 percent could be used to purchase an annuity from approved life insurers or could be withdrawn after paying tax.
Tier-II savings account
The NPSTier-II account is a voluntary retirement-cum-savings account without any withdrawalrestriction. An investment account without locking period, the Tier-IIaccount can be opened only if an individual has a Tier 1 account. Individual subscribers are free to invest or withdraw their money at any point of time. There are no deductions under this account, for private sector employees or self-employed individuals. The Tier 2 account could be opened by providing a copy of PRAN (Permanent Retirement Account Number) and submitting the duly filled Tier 2 activation form. The subscriber has to make an initial contribution of Rs 1,000while opening the Tier-IIaccount or a minimum contribution of Rs 250 per month could be chosen. It is important to maintain a minimum balance of Rs 2,000 at the end of a financial year.
Alankit is a Point of Presence Service Provider (POP-SP) for NPS across India through a network of over 5468 business locations. Alankit provides services that include,
- Subscriber registration for NPS
- Know Your Customer (KYC) verification
- Receipt of subscriber contributions
- Transmission of subscriber contributions to designated NPS intermediaries
- Subscriber grievances redressal
Who all should invest in NPS?
NPS is a highly beneficial scheme that allows one to develop a significant fund for the second innings of life by regularly making an investment in this account during one’s period of employment. A regular income invested in the account in one’s active years can be a great way to secure one’s future, particularly for those getting retired from the private sector jobs. Our Government already provides this type of pension facility for the employees working in the public sector but those working in the private corporate sector or any unorganized segment also do not have access to this facility. That’s exactly why a systematic plan of investment such as NPS can be a good choice. Thus, all the salaried class people on the lookout for taking the maximum advantage of 80C deductions may also consider this scheme.
Features & Benefits- NPS
- Returns/ Interest - A specific part of the amount invested in one’s NPS is duly invested in the market in different equities, which does not offer any guaranteed returns. However, in all probability the returns are usually higher as compared to the conventional tax-saving investments such as the PPF. NPS has been going strong since over a decade now, and till now, it has delivered annual returns of about 8% to 10%. The scheme also offers one the freedom to change their fund manager if required in case the performance of the fund is not coming as per expectations.
- Contribution of Investor - Despite there being no particular upper limit as such, there is still a fixed requirement of the minimum investment amount. One is required to invest either a minimum monthly amount of Rs. 500 (Tier I account) or Rs. 250 (Tier II account) at least, or an annual amount of Rs. 1,000 (Tier I account). In case one is unable to sustain the minimum specified amount, the account will automatically get will freezed. It can then be unfreezed by giving a penalty at any of the nearest Point of Presence (PoP).
- Assessment of Risk - As of now, there is a fixed cap of 50% on equity exposure for the national pension scheme. Owing to this, the ratio of risk and return is stabilized in the investor’s interest. Thereafter, the corpus is somehow protected against the instability of the equity market. However, the potential of earning is higher as compared to any other fixed income schemes. The PFRDA has plans to increase this cap on equity exposure to 75% in the coming times.