NPS

NPS Service By Arth Vipra Finvest Pvt Ltd

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What is NPS?

The National Pension Scheme is a social security initiative by the Central Government. This pension programme is open to employees from the public, private and even the unorganised sectors except those from the armed forces. The scheme encourages people to invest in a pension account at regular intervals during the course of their employment. After retirement, the subscribers can take out a certain percentage of the corpus. As an NPS account holder, you will receive the remaining amount as a monthly pension post your retirement. Earlier, the NPS scheme covered only the Central Government employees. Now, however, the PFRDA has made it open to all Indian citizens on a voluntary basis. The NPS scheme holds immense value for anyone who works in the private sector and requires a regular pension after retirement. The scheme is portable across jobs and locations, with tax benefits under Section 80C and Section 80CCD.

NPS started with the decision of the Government of India to stop defined benefit pensions for all its employees who joined after 1 April 2004. While the scheme was initially designed for government employees only, it was opened up for all citizens of India between the age of 18 and 65 in 2009, for OCI card holders and PIO’s in October 2019. On August 26, 2021, PFRDA increased the entry age for the National Pension System (NPS) from 65 years to 70 years. As per the revised norms, any Indian Citizen, resident or non-resident and Overseas Citizen of India (OCI) between the age of 65-70 years can join NPS and continue or defer their NPS Account up to the age of 75 years. It is administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA). On 10 December 2018, the Government of India made NPS an entirely tax-free instrument in India where the entire corpus escapes tax at maturity; the 40% annuity also became tax-free. NPS is limited to EEE, to the extent of 60%. 40% has to be compulsorily used to purchase an annuity, which is taxable at the applicable tax slab.

Who should invest in the NPS?

The NPS is a good scheme for anyone who wants to plan for their retirement early on and has a low-risk appetite. A regular pension (income) in your retirement years will no doubt be a boon, especially for those individuals who retire from private-sector jobs.

A systematic investment like this can make a massive difference to your life post-retirement. In fact, Salaried people who want to make the most of the 80C deductions can also consider this scheme.

What does NPS cover?

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Features and Benefits of NPS:

  • Returns/Interest: A portion of the NPS goes to equities (this may not offer guaranteed returns). However, it offers 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 so far 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 the National Pension Scheme. 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. The earning potential of NPS is higher as compared to other fixed-income schemes.
  • 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(18) as NPS tax benefit. The scheme, therefore, allows a tax deduction of up to Rs 2 lakh in total.

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The Process to Register for the National Pensions Scheme

Individuals can register and obtain a subscription to the National Pension System through the online platform eNPS. Registration for the scheme can be done in the following steps.

 

Step 1 – Go to the eNPS portal available at the official website of the National Pension System.

 

Step 2 – Choose your subscriber type from the available options ‘Individual Subscriber’ and ‘Corporate Subscriber’.

 

Step 3 – Choose your suitable residential status. The options include ‘Citizen of India’ and ‘NRI’.

 

Step 4 – Opt for either Tier I account type or both accounts as a choice of the former is mandatory for long-term savings.

 

Step 5 – Enter your PAN details and select a suitable bank or PoP. It is ideal to choose a PoP with whom you have an existing relationship such as a savings/current/Demat/account for KYC verification as the chosen PoP will do it.

 

Step 6 – Upload the scanned copy of your PAN card along with a cancelled cheque. The image format should be in .jpg, .jpeg or .png format with a file size of 4KB to 2MB.

 

Step 7 – Next, upload your scanned photograph and signature in the same format and size as above.

 

Step 8 – Once routed to the payment gateway, proceed to pay the required charges via net Banking.

 

Step 9 – With the completion of payment, your Permanent Retirement Account Number will be generated.

 

While this was the process of completing PRAN generation for all subscribers, NRIs need to complete a few additional steps as follows.

 

Choose the status of the bank account, i.e., either repatriable or non-repatriable.

Provide the details of the NRO or NRE bank account along with the passport’s scanned copy.

Choose a suitable communication address, i.e. either permanent or overseas address. Note that communication to the latter attracts additional charges.

Once the PRAN is allotted, an applicant needs to proceed with either of the following steps for authentication.

Importance of NPS

A substantial corpus creation for one’s retirement phase is an essential aspect to take care of during financial planning. It not only allows individuals to fulfil their expenditure requirements but also allows them to sail through their post-retirement life with the least hassles.

To address this concern of the growing senior citizen demography in the country, the Indian Government thus introduced schemes like the National Pension System or NPS. The scheme allows for systemised savings during one’s working years, thus inculcating a financial discipline among individuals to save for the future.

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