The National Pension Scheme is a systematic retirement saving scheme. It is a government-backed program that tries to ensure social and financial stability for citizens after retirement.
In 2004, the Government of India launched the National Pension Scheme (NPS) with the primary objective to provide retirement income to all. The scheme aims to introduce pension reforms and make saving for retirement a habit amongst individuals. The PFRDA (Pension Funds Regulatory and Development Authority) manages the NPS. The scheme offers two very affordable savings options under Tier I and Tier II.
National Pension Scheme: Tier I & Tier II
The NPS is available to all Indian citizens (including NRIs) aged between 18 and 60 years. Subscribers are allotted a unique PRAN (Permanent Retirement Account Number) which remains unchanged throughout their life. The PRAN provides access to 2 types of accounts.
- Tier I Account: This is a non-withdrawable account meant only for retirement savings. Tax benefits are therefore available. The conditions for a Tier I account are as follows:
- At the time of opening the account you must deposit at least Rs. 500.
- You must contribute at least Rs. 6,000 per year.
- At least one contribution (of minimum Rs. 500) must be made every year.
- At the time of retirement, at least 40% of the accumulated savings must be annuitized. [Note: Annuitized means invest in a life annuity scheme offered by a PFRDA empanelled and IRDA approved annuity service provider.]
- 80% of the amount must be annuitized if the savings are withdrawn upon resignation.
- If the subscriber has died, then the entire amount is given to the nominee.
- Tier II Account: This is a voluntary savings account with no tax benefits. You can withdraw your savings whenever you want.
- The minimum contribution requirement at the time of opening the account is Rs. 1,000.
- You must deposit at least Rs. 250 once per year.
- You will have to maintain a minimum balance of Rs. 2,000 at the end of each financial year.
- In order to withdraw, you need to submit form UOS-S12 at the associated Point of Presence-Service Provider. The amount may vary depending on the NAV declared at the time of processing. Therefore, a total of 3 days’ time (after the date of processing) must be set aside for the amount to be redeemed to your savings account.
Benefits of the National Pension Scheme
The primary benefit of the National Pension Scheme (Tier I account) is the tax treatment. You can deduct a contribution of up to Rs. 1 lakh from your gross annual income under section 80C. Also, the interest that has accrued in the account and the amount annuitized are both not taxable. However, the amount that you withdraw is taxable.
In addition to the tax benefits, subscribers have the flexibility of deciding their contribution amount. You can also decide how frequently you want to contribute.
How to open a National Pension Scheme Account Online
Below we have outlined the steps you will need to follow in order to open an NPS account. While opening an account you’ll need a mobile number, an email id and an active savings bank account (with net banking facility). You will also need either your Aadhaar or PAN card.
- Navigate to the NSDL’s eNPS website.
- Click on the ‘REGISTRATION’ tab.
- On the ‘Online Subscriber’s Registration’ page, choose ‘New Registration’.
- Make the selections that are appropriate to your case.
- If you have an Aadhaar card, select ‘Aadhaar’. Else, select ‘PAN’.
Follow these steps if you selected Aadhaar in Step 5
- Click ‘Generate OTP’.
- Enter all the details including the OTP received on your mobile.
- The system will search for your personal details from the Aadhaar database.
- Enter all the mandatory information in the online form.
- Upload a scanned copy of your photograph and signature.
- Submit the details to reach the online payment gateway.
- Make your first contribution using debit or credit card or net banking facility.
Follow these steps if you selected PAN in Step 5
- From the drop down list, select the bank in which you hold a savings account.
- The bank will verify your KYC details. For verification, the bank will debit a one-time fee of Rs. 125 from your account.
- Enter all the mandatory details in the online form. Make sure that your name and address match with your bank’s records, since this is important for KYC verification.
- Upload your photograph and signature.
- Make the online payment towards your first contribution.
After successful payment, the PRAN is generated. If you elected to open a Tier I account with an Aadhaar card, then you have the option to eSign the document. Otherwise you can choose the ‘Print and Courier’ option to send the physical form within three months to the CRA at:
Central Recordkeeping Agency (eNPS): NSDL e-Governance Infrastructure Limited, 1st Floor, Times Tower, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai – 13. Tel: 4090 4242; Email address: eNPS@nsdl.co.in
The National Pension Scheme provides financial security to the citizens of our country after they retire. There are tax benefits, too. Therefore, if you want to ensure a regular source of income after retirement, sign up for the National Pension Scheme today.
In case of any difficulty in opening the NPS account, do leave your queries in the comments section below. You may also call the NPS helpline number on 1800110708. It is a toll-free number to help existing and potential subscribers with their queries.