What is NPS?
The National Pension System is a voluntary pension fund scheme of the government of India. Regulated by the PFRDA (Pension Fund Regulatory & Development Authority), the NPS gives exposure to equity and debt instruments. A customer can build a pension fund by investing in this voluntary contribution pension system and also save taxes since the NPS is an EEE (exempt-exempt-exempt) instrument.
All about the SBI Pension Seva portal
NPS: How does it work?
An NPS subscriber contributes to his NPS account at regular intervals through the course of his retirement. After retirement, he can withdraw 60% of this amount as a lump sum. The remaining 40% of the NPS money is paid as a monthly pension.
See also: All you need to know about National Pension Scheme NPS login
NPS account benefits
- Voluntary
- Retirement planning
- Tax benefits
- Portable
- Cost-effective
- Superannuation fund transfer has no tax implications
see also: section 80CCD 1B
NPS eligibility
Barring people working in the armed forces, every citizen of India, whether employed in the public, private or unorganized sector, is eligible for the National Pension System.
See also: All about Atal Pension Yojana
NPS investment options
Active choice
You can decide on the asset classes in which your contribution should be invested. You can also decide the percentages of this investment. These asset classes include:
- Alternate assets or Asset Class A: High risk as the fund is invested in real estate and infrastructure funds.
- Equity or Asset Class E: High risk-high return option.
- Corporate bonds or Asset Class C: Low risk as the fund is invested in fixed income bearing debt instruments.
- Government securities or Asset Class G: Low risk as the fund is invested in government securities.
Auto choice
Under lifecycle funds, the management of investment of funds is done automatically, based on the age of the subscriber. Moderate Lifecycle Fund is the default option under NPS. However, you can pick one of the 3 lifecycle funds:
- Aggressive Life Cycle Fund (LC75)
- Moderate Life Cycle Fund (LC50)
- Conservative Life Cycle Funds (LC25)
NPS tax benefits
In the case of NPS, an investor is given income tax exemption on maturity and the whole pension withdrawal amount. Tax benefits are offered to NPS subscribers under Section 80CCD.
Against self-contribution: Under Section 80CCD (1), 10% of your salary or Rs 1.50 lakhs, whichever is lesser, can be claimed as the tax deduction against self-contribution. You can also claim a tax deduction of up to Rs 50,000 under section 80CCD (1B) against self-contribution.
Against employer contribution: Section 80CCD (2) allows deductions against the employer’s NPS contribution. The deduction amount will be lowest of:
- Actual contribution made by the employer
- 10% of basic salary + dearness allowance
- Gross total income.
The employer tax benefit is capped at up to Rs 7.5 lakh for NPS, PF and superannuation.
NPS withdrawal at 60
As mentioned earlier, you can withdraw 60% of your NPS money as a lump sum. This money is tax-free.
NPS withdrawal before 60
Those who have been contributing to the NPS account for more than three years can withdraw 25% of the corpus for specific purposes. You can make such withdrawals thrice, at a gap of 5 years.
NPS account types
All citizen model: Where only the subscriber makes the contribution.
Corporate model: Where the subscriber and his employee both make contributions.
Anyone opening an NPS account (Tier-1 account) can open a sub-account, known as a Tier-II account.
Tier-I account: A restricted and conditional withdrawable retirement account. You can withdraw only upon meeting the exit conditions.
Tier-II account: Voluntary savings facility available as an add-on to any Tier-1 account holder. Subscribers are free to withdraw their savings whenever they wish.
While money from the Tier-II account can be transferred to Tier-I, the opposite is not allowed. Tax benefits are also not offered on the Tier-II account.
NPS account contribution
| All citizen NPS model | Tier-I | Tier-II |
| Minimum contribution at the time of account opening | Rs 500 | Rs 1,000 |
| Minimum amount per contribution | Rs 500 | Rs 250 |
| Minimum total contribution in a year | Rs 1,000 | Not applicable |
| Minimum frequency of contributions | Once a year | Not applicable |
How to open an NPS account?
Online: You can open an NPS account, using the following websites:
Offline: Locate a Point of Presence Service Provider (POP-SP) to get an NPS registration form. To know the details of your nearest POP, visit NSDL CRA.
NPS latest news
Govt launches revamped National Pension System website
July 28, 2023: Pension Fund Regulatory & Development Authority (PFRDA) chairman Deepak Mohanty today launched the revamped National Pension System (NPS) Trust website. The new website accessible at https://npstrust.org.in marks a significant milestone in NPS Trust’s commitment to enhancing user experience and providing seamless access to information related to the National Pension System (NPS) and the Atal Pension Yojana (APY).
On the landing page itself, three important tabs — Open NPS Account, Plan your retirement (pension calculator) and View my NPS holdings—are placed for the convenience of the subscribers. On the home page, the subscribers can view the scheme returns in a simple, understandable graphical representation.
The menu structure is organised and standardised into six simpler categories, for both NPS and APY: Features and Benefits, Online Services, Returns and Charts, NPS Calculator, Grievances and Exit.
5,67,116 beneficiaries above age of 60 years under NPS
The number of beneficiaries above the age of 60 years under the National Pension System is 5,67,116, data available with the Pension Fund Regulatory and Development Authority (PFRDA) show. These numbers include beneficiaries contributing under the NPS after the age of 60 years and those who have exited the NPS after the age of 60 years and are receiving annuity, Union minister of state for finance Bhagwat Kisanrao Karad told the Lok Sabha in a written reply on March 20, 2023.
