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NPS - National Pension System

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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 The rest 20 percent could be used to purchase an annuity from approved life insurers or could be withdrawn after paying tax.

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.

Frequently Asked Questions About NPS

To contribute in Tier I and Tier II accounts, the subscriber needs to deposit the contribution amount along with the duly completed NCIS (NPS Contribution Instruction Slip) to any POP-SP.

Tier I subscribers are required to make contributions subject to the following conditions:

  • -Minimum amount at the time of account opening: Rs.500/-
  • -Minimum amount per contribution: Rs.500/-
  • -Minimum contribution per year: Rs. 6000/-

Over and above the mandated limit of a minimum of one contribution, a subscriber may decide on the frequency of the contributions through the year as per his/her convenience.

Minimum contribution requirements for Tier II are:

  • - Minimum amount at the time of account opening: Rs.1000/-
  • - Minimum amount per contribution: Rs.250/-
  • -Maintenance of minimum balance at the end of each financial year: Rs.2000/-

Both Tier I and Tier II accountholders have to make at least one contribution in a financial year.

Employers’ contributions to NPS on behalf of their employees will receive deductions from income (employer’s income), an amount equivalent to the amount contributed or 10% of the Basic Salary + DA of the employee, whichever is less. (Section 36(1) (iv a) of the Income Tax Act 1961). Individual employees contributing additionally to the NPS, the investment is eligible for deduction from income under Section 80CCD of the Income Tax Act 1961.

The following applicants cannot join:

Undischarged insolvent: Individuals who are not granted an ‘order of discharge’ by court.

Individuals of unsound mind: An individual is said to be of unsound mind for the purposes of making a contract if, at the time of making it, he is incapable of understanding it and of forming a rational judgement regarding its effect upon his self-interest.

Pre-existing account holders under NPS.

In the event of a subscriber’s death, the beneficiary submits a withdrawal request to the associated POPSP who will enter the request in the CRA system. After the request is processed, a cheque is issued favoring the beneficiary and forwarded to the associated POP.
CRA – Central Record Keeping Agency – is the core infrastructure for the NPS. It is managed by NSDL and its main function is recordkeeping, administration and customer service functions for all NPS subscribers such as, issuing unique PRAN (Permanent Retirement Account Number) to each subscriber, maintaining a database of all PRANs issued and recording transactions related to each subscriber’s PRAN.
On successful registration, PRAN (Permanent Retirement Account Number) will be allotted to the subscriber. The PRAN Card is a document with the PRAN, subscriber name, subscriber’s father’s name, photograph and the subscriber’s signature or thumb impression.
An individual cannot transfer savings from one NPS account to another.
Annuity is the context of NPS refers to the monthly sum that is received by the subscriber from the Annuity Service Provider after he attains the age of 60.
If a subscriber wishes to exit from NPS before attaining the age of 60, he/she can withdraw up to 20% of the sum accumulated till that point of time. The subscriber has to buy annuity with the rest of the money. If a subscriber dies before attaining the age of 60, the entire sum goes to the nominee.
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