Invest in NPS
What is NPS?
National Pension System (NPS) is a ‘Government of India’ initiative with an objective of Development of a sustainable and efficient voluntary defined contribution Pension System in India. It is regulated by Pension Fund Regulatory and Development Authority (PFRDA).
NPS is an easily accessible, low cost, tax-efficient, flexible and portable retirement savings account. Under NPS, the individual contributes to his retirement account and also his employer can also co-contribute (under Corporate tie-up) for the social security/welfare of the individual. NPS is designed on Defined Contribution basis wherein the subscriber contributes to his / her account. The savings create a Retirement Corpus (Pension Wealth) through the baskets of investments i.e. Equity (E), Corporate Bonds (C) Govt. Securities (G) and Alternate Assets (A) commonly known as E, C ,G and A.
Who can join NPS ?
NPS can be joined by any citizen of India, whether Resident or Non-Resident between 18-65 years of age. There are two models under which an Individual can register himself in NPS and take the benefits of the scheme.
- i. NPS All Citizen’s Model : The Individual can join and take the tax benefit of maximum up to Rs.50,000 in a financial year under Income Tax Act (Sec 80 CCD(1B)). For registration, the applicant should comply with the Know Your Customer (KYC) norms. All the documents required for KYC compliance need to be mandatorily submitted at the time of registration.
- ii. NPS Corporate Model: NPS Corporate Model provides a platform for the employers (PSU’s, Private Companies ) to co-contribute for the pension to their employee with the flexibility in the amount of contribution from employee/employer. The NPS Corporate model can be introduced along with any other retirement benefit schemes like Employee Provident Fund and Superannuation Fund . The portability feature of NPS is best suited for the employees of Corporate Sector, where the employment change is frequent. Under Corporate model additional tax benefit upto 10% of Basic+DA can be availed in a year under Income Tax Act (Section 80 CCD (2).
The tax rebate applicable in above points (i) and (ii) are over and above the existing standard deductions under IT Sec 80CCE limit of 1.5 Lakhs.
Types of NPS Account: Tier-I account: All the tax benefits discussed in above points are over and above the existing standard deductions under IT Sec 80 CCE limit of 1.5 Lakhs and are only available under the NPS Tier 1 account.
Tier-II account: This is a voluntary savings facility. The applicant will be free to withdraw his savings from this account whenever he wishes to. This is a not a retirement account and the applicant cannot claim any tax benefits against contributions to this account.
Why should I invest in NPS?
NPS gives you the undernoted unique advantages which will help you built the best possible retirement corpus:-
- 1. Additional Tax Deduction: NPS provides an opportunity of extra tax savings
i) Employer’s Contribution: Deductible up to 10% of salary (Basic + DA) as additional deduction under section 80CCD(2). It has no upper cap on the amount
ii) Employee’s Contribution: Opportunity of extra tax savings under Sec 80 CCD (1B) up to Rs.50,000/-
The tax rebate applicable in above points (i) and (ii) are over and above the existing standard deductions under IT Sec 80CCE limit of 1.5 lakhs
- 2. Lower Expense Ratio: NPS is perhaps the world’s lowest cost pension scheme. The total recurring expenses inclusive of the Fund Management fee and all other handling and administrative charges would work out to be around to 0.21% p.a. The lower expense ratio would lead to HIGHER RETIREMENT CORPUS
- 3. Ensures Complete Portability: NPS account can be operated from anywhere country irrespective of employment and geography
- 4. Tax Efficient: NPS is now 100% tax efficient. The subscriber can now withdraw the 60% of the corpus without paying any tax
- 5. Flexibility: Subscribers have -
- i) Choice of Pension Fund managers (PFMs)
- ii) Choice of Investment mix
- iii) Choice of Life Cycle Fund is also available
What is the process of enrolling in NPS?
The process for enrolling in NPS is very simple. If you are an individual between 18 years to 65 years you can register either by downloading the forms available under the section ‘Invest in NPS’ and submit it to the nearest UTI Branch office
The registration form is also readily available at all the UTI branch offices. You may visit the nearest UTI branch for additional information on NPS.
You will be required to undergo the following steps:
A.Fill up the NPS Application form with Black INK and deposit it along with the Additional Contribution Slip form to the nearest UTI Branch office
B. Documents to be attached along with the NPS Application Form
(i) One colour photograph to be pasted on the Application Form
(ii) Proof of Address (AADHAAR Card/ Bank passbook/ Voter ID/ Passport etc.)
(iii) Identity Proof (PAN Card/ Driving License/ Passport)
(iv) Contribution cheque drawn in favour of "UTI AMC Collection Account - NPS Trust"
Features of NPS as compared to other Retirement Plans?
NPS is superior to other perceived Retirement plans because of the following reasons:
The additional tax benefits which can be availed in addition to the existing standard Income Tax deduction u/s 80CCE. The tax rebate under u/s 80CCD(1B) and under u/s 80 CCD(2) are over and above the 1.5 lakhs limit under u/s 80 CCE
NPS is having the lowest expense ratio as compared to any other retirement plan
The only available retirement plan which has the flexibility of :
a.Choosing the Asset allocation between Equity, Corporate Bonds, Government Security and Asset class
b.Choosing Pension Fund Managers (PFM) as per the performance and the services offered from the current list of 8 PFMs
iv. The biggest feature of NPS being its prime objective of creating a corpus for Retirement which remains intact even after retirement. The annualized returns on the corpus yields the returns which are paid as monthly pension
v . NPS is not only tax efficient during the working age but also even after retirement
How can I withdraw my contributed amount?
NPS is a long term retirement savings scheme which builds up the pension wealth through effective investments of the subscriber contributions over the term of the subscriber’s continuation in the scheme. The greater the value of the contributions made, greater the investments achieved, the longer the term over which the fund accumulates and the lower the charges deducted, the larger would be the eventual benefit of the accumulated pension wealth likely to be. The subscriber can exit from NPS and withdraw the accumulated pension wealth in the following manner and no other exits or withdrawals are permitted:
For subscribers joining between 18-60 years:
- a. Upon attainment of age of 60 years: At least 40% of the accumulated pension wealth of the subscriber needs to be utilized for purchase of an annuity providing for the monthly pension of the subscriber and the balance (60%) is paid as a lump sum payment to the subscriber. If the total corpus is not exceeding Rs. 2 lacs, then the subscriber has the option to withdraw the whole corpus in lumpsum.
- b. Upon Death (irrespective of cause): The entire accumulated pension wealth (100%) would be paid to the nominee / legal heir of the subscriber and there would not be any purchase of annuity/monthly pension. The nominee, if so wishes, has the option to purchase annuity of the total corpus.
- c. Exit from NPS before attainment of age of 60 years (irrespective of cause): At least 80% of the accumulated pension wealth of the subscriber needs to be utilized for purchase of an annuity providing for the monthly pension of the subscriber and the balance (20%) is paid as a lump sum payment to the subscriber. If the total corpus is not exceeding Rs. 1 lac, then the subscriber has the option to withdraw the whole corpus in lumpsum. Subscriber can exit from NPS only after completion of minimum 10 years in NPS.
For subscribers joining between 60-65 years: The exit conditions for subscribers joining the NPS beyond the age of 60 years in the NPS –Private Sector will be as under:
- a. Normal exit: The subscriber exiting after completion of 3 years from the date of joining NPS. In the normal exit, the subscriber will be required to annuitize at least 40% of the corpus for purchase of annuity and the remaining corpus can be withdrawn in lump sum. In case the accumulated corpus at the time of exit is equal or less than Rs. 2 lacs, the subscriber will have the option to withdraw the entire corpus in lump sum.
- b. Premature Exit: Any exit before completion of 3 years will be treated as premature exit. In such case, the subscriber will be required to annuitize at least 80% of the corpus for purchase of annuity and the remaining corpus can be withdrawn in lump sum. In case the accumulated corpus at the time of exit is equal or less than Rs. 1 lac , the subscriber will have the option to withdraw the entire corpus in lump sum.
- c. Exit due to the death of the subscriber: The entire corpus shall be payable to the nominee of the subscriber.
The subscribers would be able to purchase the annuities directly from the empanelled Annuity Service Providers (ASP) as per their choice of annuity that is available in the market/with the ASPs.
Tax free partial withdrawals are allowed after vesting age which is up to 25% of self contribution. One can withdraw for 3 times during entire tenure for meeting specific financial needs (children education / marriage / purchase of house/medical treatment/skill development).
How much Pension will I get?
The Pension to be earned at retirement will depend on your invested amount, years of investment done, interest earned on the corpus and the percent of Annuity availed on the corpus. Click on the Pension Calculator to know your pension amount.
Detailed FAQ's : Enclosed
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National Pension Scheme