Investment Details

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National Pension Scheme

The National Pension System (NPS) is a voluntary defined contribution pension system administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA). The NPS started with the decision of the Government of India to stop defined benefit pensions for all its employees who joined after 1 January 2004. While the scheme was initially designed for government employees only, it was opened up for all citizens of India in 2009.

Architecture

Unlike traditional financial products where all the functions (sales, operations, service, fund management, depository) are done by one company, NPS follows an unbundled architecture where each step of the value chain has been made disjointed from the other. This unbundling not only allows the customer to mix and match his providers of service through the value chain, picking the best-suited option, but it also curbs the incidence of misselling.

NPS architecture consists of the NPS Trust, which is entrusted with safeguarding subscribers' interests, two privately owned Central Recordkeeping Agencies (CRAs), which maintain the data and records, Point of Presence (POP) as collection, distribution and servicing arms, pension fund managers (PFM) for managing the investments of subscribers, a custodian to take care of the assets purchased by the fund managers, and a trustee bank to manage the banking operations. 

At age 60 the customer can choose to purchase pension Annuity Service Providers (ASP). NPS investors can't opt for two pension fund managers, neither can switch to another pension fund before a year. In 2017, PFRDA increased the entry age in NPS to 70 years.

How to join NPS

Enrolments and contributions under NPS are made through nodal officers for Govt. employees; employer or PoPs for corporate employees and PoPs or eNPS for other individuals.

Who can join

A citizen of India, whether resident or non-resident or an OCI card holder can join NPS (Through a circular issued on 29 October 2019 PFRDA has stated that now Overseas Citizen of India (OCIs) can enrol to invest in NPS tier-1 accounts), subject to the following conditions:

  • The subscriber should be between 18 and 70 years old as of the date of submission of his/her application to the Point of Presence (POP) / Point of Presence–Service Provider-Authorized branches of POP for NPS (POP-SP).
  • The subscribers should comply with the Know Your Customer (KYC) norms as detailed in the subscriber registration form.
  • Should not be Un-discharged insolvent and individuals of unsound mind.
  • A non-resident can open an account, but the account will be closed if the citizenship status of the NRI has been changed.
  • As per circular No: PFRDA/2021/36/SUP-CRA/14 Dated:26.08.2021, those Subscribers who have closed their NPS Accounts are permitted to open a new NPS Account as per increased age eligibility norms, ie. From 65 years to 70 years.

 

Withdrawal

Premature withdrawal in NPS before age 60 required parking 80% of the sum in an annuity. One can withdraw 20 percent of the corpus before 60 years but he/she must buy annuity with 80 percent of the corpus. In 2016, the NPS allowed withdrawal of up to 25% of contributions for specified reasons, if the scheme is at least 3 years old with certain conditions. One can withdraw the complete amount if the pension collected is less than INR 5,00,000. This amount was increased to INR 5,00,000 as per PFRDA Circular dated 14 June 2021.

Tax benefits

Investment in NPS is eligible for tax benefits as follows:

  • Up to INR 1,50,000 under Section 80CCD(1). The benefit is additionally capped at 10% of basic salary. The benefit under Section 80C, Section 80CCC and Section 80CCD(1) is capped at INR 1,50,000.
  • Contribution Up to Rs 50,000 under Section 80CCD(1B). This is over and above tax benefit under Section 80C.
  • Employer co-contribution up to 10% of basic and DA without any upper cap in terms of amount is tax free income in hands of employees under Section 80CCD(2)