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National Pension Scheme, NPS

NPS stands for National Pension Scheme initiated by the Government of India.

The National Pension System (NPS) is an important event in the history of India. It was launched on 1st January, 2004 with the aim of providing retirement income to all the citizens of India in order to instill the habit of saving for retirement amongst the citizens. It is a scheme which is managed by government establishment known as PFRDA (The Pension Fund Regulatory and Development Authority), which is a pension regulator and promotes old age income security by establishing, developing and regulating pension funds and protects the interests of subscribers to schemes of pension funds and related matters.

Types of NPS Accounts

Under newly formed NPS scheme, Subscriber will get the option to open two accounts under NPS also known as Tier I account and Tier II account. A Tier I account is important to open in order to join NPS while Tier II account is optional and can be opened at any point of time i.e. at the time of opening Tier I account or later on.

Difference between Tier I and Tier II accounts

Tier I NPS Account Tier II NPS Account
It is also called as Pension account It is also called as Investment account
The minimum annual contribution required for this account is Rs. 6,000 The minimum annual contribution required for this account is Rs. 250
It is a non-withdrawable account which is meant for savings for retirement It is a withdrawable account in which the NPS subscriber is free to withdraw as and when required

Features of NPS Scheme

Some of the salient features of NPS are listed below:

  • Under the NPS scheme, the subscriber will be allotted a unique Permanent Retirement Account Number (PRAN). This will remain the same throughout the subscriber's life. It can be accessed from any location in India.
  • NPS is regulated by PFRDA, with transparent investment norms and regular monitoring and performance review of fund managers by NPS Trust.
  • NPS is one of the World’s least cost investment options.
  • It is a Flexible Contribution Mechanism through which NPS subscribers have the flexibility to choose the amount and the frequency of the contribution as per their requirement.
  • NPS offers very wide range of Investment options and choice of Pension Fund Managers.

Eligibility criteria for NPS

Any citizen of India, whether he is resident/non-resident, is subjected to the following conditions:

  • Individuals who are aged between 18 – 60 years as on the date of submission of his/her application to the Point of Presence or Point of Presence Service Providers (POP/POP-SPs).
  • After attaining the 60 years of age, citizens are not permitted to make further contributions to the NPS accounts.

Documentation required for NPS

The following documents are required to be submitted to the POP for opening of the NPS account:

  • Duly filled subscriber registration form
  • Proof of Identity such as (PAN Card, Photo identity Card ,Aadhar Card, Passport, Ration Card with your photographs)
  • Proof of Address such as (Passport, Ration Card with photograph, PAN Card, Photo Identity Card and Aadhar Card )
  • Requirement of Age/date of birth proof

Income Tax Benefit under NPS

Tax benefit to salaried employees Tax benefit for self-employed
(a) Employee’s contribution - Eligible for the tax deduction up to 10% of the Salary (Basic + DA) 80 CCD (1) within the overall ceiling of Rs. 1 lakh u/s 80 CCE. Eligible for the tax deduction up to 10 % of gross income u/s 80 CCD (1) within the overall ceiling of Rs. 1 lakh u/s 80 CCE.
(b) Employer’s contribution – Employee is eligible for the tax deduction up to 10% of Salary (Basic + DA) contributed by Employer u/s 80 CCC (2) over and above the limit of Rs. 1 lakh provided u/s 80 CCE.

Additional tax benefit

As per the amendments made by the Union Budget 2015 in tax provisions for FY 2015-16. If any of the customers contribute voluntarily towards the New NPS scheme, then he/she would get an additional benefit of Rs. 50,000 u/s 80CCD (1B) which would be over and above the ceiling limit of Rs. 1,50,000 prescribed u/s 80CCE.

How to open an NPS account

Subscribers aged between 18 to 60 years are eligible to open the new pension scheme account. The subscriber has to note the following points for enrolling into NPS account:

  • Firstly, you are required to visit to your nearest POP – SP to obtain your PRAN (Permanent Retirement Account Number).
  • Secondly, you are required to duly fill in the subscriber registration form and attach the necessary prescribed documents such as signature and scheme preference, before their submission to the authorized person at the POP – SP. A subscriber has to submit KYC documents i.e. proof of identity and proof of address.
  • Thirdly, when your registration is done, you will receive the PRAN (Permanent Retirement Account Number) from CRA (Central Record keeping Agency).
  • Lastly, you have to make your first contribution of minimum Rs. 500 and Rs. 6,000 per year in NPS. There is no prescribed limit on the maximum amount that you can contribute in a year or the maximum number of contributions that you may make during the year (The minimum number of contribution is one).
  • Number of parties in the transaction

List of Registered POPs under NPS scheme
Some of the registered POPS under NPS are as follows:

  • Allahabad Bank
  • Bank of Baroda
  • Central Bank of India
  • Corporation Bank
  • Dena Bank
  • HDFC Securities Limited
  • Indian Bank
  • Muthoot Finance Limited
  • State Bank of India

Penalty charged on non- maintenance of minimum balance and contribution in TIER I and Tier II Account

Charges and Penalty for non-compliance of mandatory minimum contribution in Tier I NPS Account

If the subscriber contributes less than Rs. 6000 in a year, his/her account would be frozen and further transactions will be allowed only after the account is reactivated.

Charges and Penalty for non-compliance of mandatory minimum contribution in Tier II NPS Account

Penalty of Rs. 100/- to be levied on the subscriber for not maintaining the minimum account balance and/or not making the minimum no. of contributions.

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