The National Pension Scheme(NPS), a retirement benefits scheme introduced by the government of India, offers savings and security post-retirement to all individuals. In this article, we will look into understanding how to invest in NPS online and the various benefits of NPS.
The National Pension Scheme (NPS) is a government-sponsored pension scheme designed to provide a genuine life income for subscribers. NPS works on a contributory basis with defined benefits.
The subscriber can make regular contributions to a pension account while they are still employed, withdraw a portion of the corpus in one lump sum, and use the remaining balance to purchase an annuity to ensure a steady income post-retirement.
The scheme is structured into two tiers:
Tier-I account is a non-withdrawable retirement account in which the regular contributions are credited.
The fund/portfolio manager (chosen by the subscriber) invests these funds. Tier-I account does not allow withdrawal until the subscriber reaches the age of 60.
Unlike Tier-I, a Tier-II account allows the withdrawal of funds. However, this account is only allowed when the subscriber has an active Tier-I account. Subscribers may withdraw funds as and when needed from this account as per their needs.
To understand how to invest in NPS, you must first know who is eligible to open an NPS account.
The subscriber or individual interested in opening an NPS account must be a citizen of India, whether resident or non-resident
As of the date of submission of the POP/POP-SP application, the applicant must be between 18 and 60 years of age
The applicant must adhere to the Know Your Customer (KYC) norms as per the Subscriber Registration Form
While opening the account, the applicant must submit all the required documents to complete the KYC process
To open an NPS account, you must have a mobile number, email ID, and an active bank account with net banking enabled
Any subscriber willing to join the National Pension Scheme should submit
proof of address (PAN card, Aadhaar card, ration card with photograph, bank passbook, passport, etc) and,
proof of identity(PAN card, Aadhaar card, electricity bill, water bill, etc)
Scanned image of their signature
Passport size photographs
Here is how to invest in NPS online:
Open an online NPS account through eNPS, or the mobile app by selecting the appropriate options
Since a Tier-I account is mandatory, you can either choose only a Tier-I account or both Tier-I and Tier-II accounts while registration
A Tier-I account requires a minimum annual contribution of Rs. 1000 from the subscriber, while a Tier-II account does not require subscribers to maintain a minimum balance. However, Rs. 250 is the minimum amount per contribution.
As a subscriber, you can choose any fund to invest in. In case, you do not set a preference, your funds will be invested by Pension Fund Regulatory and Development Authority (PFRDA) by default and managed by professional fund managers
NPS allows switching between pension funds. But before a subscriber transfers from one fund to another, a fund must be maintained for at least one year.
NPS provides a selection of Pension Funds (PFs) and a range of investment options so that investors can responsibly plan their investments' growth and keep tabs on the expansion of their pension funds.
Subscribers can change from one investment option or fund manager to another.
Anyone can open an NPS account online through the eNPS portal as long as they are eligible.
The subscriber receives a Permanent Retirement Account Number (PRAN) from opening an account with NPS which remains the same throughout the subscriber’s lifetime.
NPS, unlike many pension plans in India, allows members to move to a new job or area without losing their pension contributions.
As part of its PFRDA regulation, NPS Trust regularly monitors and evaluates the performance of fund managers to ensure the safety and security of its subscribers
NPS uses the power of compounding. Before retirement, the accumulation of pension funds grows over time with a compounding effect.
As compared to other similar pension programs available globally, NPS's account maintenance fees are the lowest. The subscriber can finally reap substantial benefits from the accumulated pension wealth thanks to the low account maintenance expenses.
Apart from providing a secure retirement plan, NPS also benefits subscribers by helping them save on their taxes.
Employees who contribute to NPS on their own are eligible for the following benefits:
Within the aggregate limit of Rs. 1.50 lakh allowed by Section 80 CCE, tax deductions are allowed up to 10% of salary (Basic + Dearness Allowance).
An individual can deduct up to Rs. 50,000 under section 80 CCD(1B) over and above the overall limit of Rs. 1.50 lakh under section 80 CCE.
If the employer is contributing to the NPS, then
Section 80CCD (2) of the Income Tax Act allows for a tax deduction for the employer's contribution to NPS Tier-I (14% of salary for central government employees and 10% for everyone else). This rebate exceeds the amount permitted by Section 80C.
Self-employed individuals who contribute to NPS are eligible for the following tax benefits:
Section 80 CCD (1) allows tax deductions up to 20% of gross income, subject to the overall limit of Rs. 1.50 lakh.
Investing in NPS is the right way to bring financial stability and security to your future. Consider your long-term goals and the risks involved before choosing a fund to invest in. Set aside a minimum amount every month to contribute to NPS and reach your investment goals.
The monthly pension you receive from NPS is determined by various factors, including the financial assets in which you invested, the duration of your investment, and the amount of your contribution. You can use online NPS Calculators to calculate your monthly pension and tax benefits. For Tier-I, the first contribution must be a minimum of Rs. 500 while it is Rs. 250 for Tier-II.
Yes. You can add a maximum of three nominees to your NPS account.
As a subscriber, you are required to make at least one contribution per year toward your NPS account. If you are a Tier-I subscriber, you need to contribute a minimum of Rs. 1000 per year. This is not applicable for Tier-II subscribers.
No, you will not receive a contribution from the government to your NPS account. Individuals contribute to NPS accounts under the 'all citizens of India' model, while employee-employer groups contribute under the corporate model.
No, you cannot open more than one NPS account. Moreover, NPS is transferable across professions and locations, so there is no need to open a second account.
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