NPS – Nivesh Sahayak

National Pension Scheme (NPS)

What is National Pension Scheme (NPS)?

The National Pension Scheme is a social security initiative by GOI which is open to employees from the public, private and even the unorganised sectors except those from the armed forces. The scheme invites people to invest at regular intervals during the course of their employment and upon retirement take out a certain percentage of the corpus as a lump sum and the remaining amount as a monthly pension. The scheme is portable across jobs and locations, with tax benefits under Section 80C and Section 80CCD

Who should invest in the NPS?

The NPS is a good scheme for anyone who wants to plan for their retirement, especially for those individuals who retire from private-sector jobs.

Features & Benefits of NPS

Returns/Interest:

A portion of the NPS goes to equities which offer returns that are much higher than other traditional tax-saving investments like the PPF. This scheme has been in effect for over a decade and has delivered 8% to 10% annualised returns. In NPS, you are also allowed the option to change your fund manager if you are not happy with the performance of the fund

Risk Assessment:

Currently, there is a cap in the range of 75% to 50% on equity exposure for NPS. For government employees, this cap is 50%. In the range prescribed, the equity portion will reduce by 2.5% each year beginning from the year in which the investor turns 50 years of age. However, for an investor of the age 60 years and above, the cap is fixed at 50%. This stabilizes the risk-return equation in the interest of investors, which means the corpus is somewhat safe from the equity market volatility.

Tax efficiency – NPS tax benefit

There is a deduction of up to Rs.1.5 lakh to be claimed for NPS – for your contribution as well as for the contribution of the employer. – 80CCD(1) covers the self-contribution, which is a part of Section 80C. The maximum deduction one can claim under 80CCD(1) is 10% of the salary, but no more than the said limit. For the self-employed taxpayer, this limit is 20% of the gross income. Section 80CCD(2) covers the employer’s NPS contribution, which will not form a part of Section 80C. This benefit is not available for self-employed taxpayers. The maximum amount eligible for deduction will be the lowest of the below: Actual NPS contribution by employer 10% of Basic + DA Gross total income You can claim any additional self contribution (up to Rs 50,000) under section 80CCD(1B) as NPS tax benefit. The scheme, therefore, allows a tax deduction of up to Rs 2 lakh in total.

Withdrawal Rules After 60

Contrary to common belief, you cannot withdraw the entire corpus of the NPS scheme after your retirement. You are compulsorily required to keep aside at least 40% of the corpus to receive a regular pension from a PFRDA-registered Insurance Companies. The remaining 60% is tax-free now. The latest update from the government says that the entire NPS withdrawal corpus is exempt from tax.

Early Withdrawal and Exit rules

As a pension scheme, it is important to continue investing until the age of 60. However, if you have been investing for at least three years, you may withdraw up to 25% for certain purposes. These include children’s wedding or higher studies, building/buying a house or medical treatment of self/family, among others. You can make a withdrawal up to three times (with a gap of five years) in the entire tenure. These restrictions are only imposed on tier I accounts and not on tier II accounts.

Equity Allocation Rules

The NPS invests in different schemes, and the Scheme E of the NPS invests in equity. You can allocate a maximum of 50% of your investment to equities. There are two options to invest in – auto choice or active choice. The auto choice decides the risk profile of your investments as per your age. For instance, the older you are, the more stable and less risky your investments. The active choice allows you to decide the scheme and to split your investments.

Option to change the Scheme or Fund Manager

With NPS, you have the provision to change the pension scheme or the fund manager if you are not happy with their performance. This option is available for both tiers I and II accounts.

How to open an NPS account

PFRDA regulates the operations of the NPS, and they offer both an online as well as an offline means to open this account.

Offline Process

To open an NPS account offline or manually, you will have to find a PoP – Point of Presence. Collect a subscriber form from your nearest PoP and submit it along with the KYC papers. Once you make the initial investment (not less than Rs.500 or Rs.250 monthly or Rs. 1,000 annually), the PoP will send you a PRAN – Permanent Retirement Account Number. This number and the password in your sealed welcome kit will help you operate your account. There is a one-time registration fee of Rs.125 for this process

Online Process

It is now possible to open an NPS account in less than half an hour. Opening an account online (enps.nsdl.com) is easy, if you link your account to your PAN, Aadhaar and mobile number. You can validate the registration using the OTP sent to your mobile. This will generate a PRAN (Permanent Retirement Account Number), which you can use for NPS login.

Types of NPS Account

The two primary account types under the NPS are tier I and tier II. The former is the default account while the latter is a voluntary addition. The table below explains the two account types in detail.

Particulars	NPS Tier-I Account	NPS Tier-II Account
Status	Default	Voluntary
Withdrawals	Not permitted	Permitted
Tax exemption	Up to Rs 2 lakh p.a.(Under 80C and 80CCD)	1.5 lakh for government employees Other employees-None
Minimum NPS contribution	Rs 500 or Rs 500 or Rs 1,000 p.a.	Rs 250
Maximum NPS contribution	No limit	No limit

The Tier-I account is mandatory for everyone who opts for the NPS scheme. The Central Government employees have to contribute 10% of their basic salary. For everyone else, the NPS is a voluntary investment option.

NPS Calculator

Calculate the monthly pension and tax benefits you can avail of by investing in NPS through Cleartax NPS Calculator. Comparing NPS scheme with other Tax Saving Instruments

Online Process

Comparing NPS scheme with other Tax Saving Instruments

Public Provident Fund (PPF) and Tax-saving Fixed Deposits (FD).

Here is how they are in comparison to the NPS:

Investment	Interest	Lock-in period	Risk Profile
NPS	8% to 10% (expected)	Till retirement	Market-related risks
ELSS	12% to 15% (expected)	3 years	Market-related risks
PPF	7.1% (guaranteed)	15 years	Risk-free
FD	5% to 7% (guaranteed)	5 years	Risk-free

The NPS can earn higher returns than the PPF or FDs, but it is not as tax-efficient upon maturity. For instance, you can withdraw up to 60% of your accumulated amount from your NPS account.

Comparing NPS with ELSS

The good thing about the National Pension Scheme is that it has equity allocation. However, the equity allocation is still not as much as tax-saving mutual funds. Equity-Linked Savings Schemes invest primarily in equities and can generate higher returns than the NPS. The lock-in period of tax-saving mutual funds is also lesser than NPS – only three years compared to NPS. Also, if you are an aggressive risk-seeker, equity exposure by NPS won’t be sufficient in the long run. Since ELSS can meet that requirement, it serves investors with more risk-appetite better.

Comparing the NPS scheme with other Tax Saving Instruments. Public Provident Fund (PPF) and Tax-saving Fixed Deposits (FD).

Here is how they are in comparison to the NPS

Investment	Interest	Lock-in period	Risk Profile
NPS	8% to 10% (expected)	Till retirement	Market-related risks
ELSS	9% to 12% (expected)	3 years	Market-related risks
PPF	7.1% (guaranteed)	15 years	Risk-free
Bank Tax Savings FD	6% to 8% (guaranteed)	5 years	Risk-free

Comparing the NPS scheme with other Tax Saving Instruments. Public Provident Fund (PPF) and Tax-saving Fixed Deposits (FD).

Here is how they are in comparison to the NPS:

Investment	Interest	Lock-in period	Risk Profile
NPS	8% to 10% (expected)	Till retirement	Market-related risks
ELSS	9% to 12% (expected)	3 years	Market-related risks
PPF	7.1% (guaranteed)	15 years	Risk-free
Bank Tax Savings FD	6% to 8% (guaranteed)	5 years	Risk-free

Download NPS Forms

Benefits of NPS

Transparent Regulations

NPS is regulated by PFRDA which ensures transparent norms governing the activities

Voluntary Nature

It is a voluntary scheme for all and you can invest any amount in your NPS account at any time.

Flexibility

You have the flexibility to select or change the POP investment pattern and fund manager.

Economic

NPS is one of the lowest cost investment products available in India right now.

Portability

NPS accounts or PRAN will remain the same irrespective of change in employment, city or state.

Superannuation Transfer

You can transfer your Superannuation funds to their NPS account without any taxes.

Why Through Us?

Complete Assistance

From opening your account to fund transfers, we provide complete assistance to you.

Transparency & Safety

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Professionalism

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