India is the world’s most populous country and it has a very young population. With improvements in health facilities, the longevity of the population is also increasing. Thus, India’s working population needs to plan for old age and retirement. One of the ways to guarantee financial stability after retirement is to enrol in a pension scheme.
In 2004, the Government of India reformed India’s pension system by introducing the National Pension System(NPS). Its defining characteristic is the contribution made by employees towards their pension.
In this blog, we will discuss the steps for NPS account opening and the benefits it offers.
What is National Pension System?
The National Pension System allows a professional to build his pension corpus. NPS is an investment scheme in which the individual invests a certain sum regularly with the goal of stable income after retirement. It is a voluntary process and is open to all Indian citizens between the ages of 18 and 70 years. The government hails it as one of the most inexpensive pension schemes in the world.
Factors which influence the returns include market movement, amount of contributions made in NPS, and annuity plan which the investor chooses. The returns under NPS are guided by market conditions therefore there is no guarantee of returns under his scheme.
NPS offers following benefits to different types of investors.
Tax Benefits to Employees
Employees can avail of the following benefits under NPS.
- Employees can claim tax deductions up to 10% of salary (Basic + DA) under Section 80CCD(1) of Income Tax(IT) Act. This is applicable under entire ceiling of Rs 1.50 lakh as per Section 80CCE.
- Employees can claim tax deductions up to Rs 50,000 under Section 80CCD(1B), over and above ceiling of Rs 1.50 lakh, as per section 80CCE.
Tax Benefit to Employers
Employers can avail the following benefits under NPS:
- Over the limit of Rs 1.50 lakh under Section 80CCE of the IT Act, employers can claim tax deductions of up to 10% of salary (Basic + DA) under Section 80CCD(2). In case of central government employers this deductions of up to 14%.
Tax Benefits to Self-employed
Self-employed individuals can avail of the following benefits under NPS:
- Along with the ceiling of Rs 1.50 lakh under Section 80CCE of IT Act, self-employed individuals can claim tax deductions of up to 20% of gross income under Section 80CCD(1).
- Over the ceiling of Rs 1.50 lakh under Sec 80CCE of IT Act, self-employed individuals can claim tax deductions of up to Rs 50,000 under Section 80CCD(1B).
Tax Benefit On Partial Withdrawal
Following are the benefits available to an individual upon partial withdrawal:
- Under Section 10(12B) of IT Act, withdrawal up to 25% of the contribution amount will be exempted from taxation.
Tax Benefit On Buying Annuity
An individual is eligible for following benefits on purchase of an annuity:
- Under Section 80CCD(5) of IT Act, an individual can claim tax exemption on the purchase of an annuity on achieving the age of 60 or superannuation. However, the returns from the purchase of annuity will be subjected to taxes as per Section 80CCD(3).
Tax Benefit On Lumpsum Withdrawal
Upon reaching the age of 60 or superannuation, a person can claim the following advantage:
- Under Section 10(12A) of the IT Act, lumpsum withdrawal of 60% of the total pension amount will be eligible for tax exemption.
Tax Benefit to Corporates/ Employers
Corporates and private employers can claim the following tax deductions:
- As per Section 36(1)(iv)(a) of the IT Act, the employer's contribution in the NPS account can be claimed for deduction as ‘Business Expense’ from the Profit & Loss Account. The deduction can go up to 10% of the salary (Basic + DA).
Eligibility To Open NPS Account
The following are the eligibility criteria for NPS account opening:
- You need to either be a citizen of India or an Overseas Citizen of India(OCI).
- Your age needs to be between 18 and 70 at the time of submitting the application.
- You will have to comply with KYC norms.
Please note that NPS can’t be opened on behalf of a third person.
Hindu Undivided Families (HUFs) and Persons of Indian Origin (PIOs) can’t subscribe to NPS.
All central government employees who joined service on or after January 1, 2004, are covered under NPS.
Documents Required to Open NPS Account
Individuals residing in India need the following documents for NPS account opening:
- A recent photograph
- PAN card
- Proof of address
- Bank account details
Overseas citizens of India will also have to submit their OCI card and their proof of address for the foreign country.
Types Of NPS Account
You can invest in NPS under two account types, namely, Tier I and Tier II. While Tier I is compulsory for NPS, Tier II is optional. You will find the details below:
| Category | Tier I | Tier II |
| Status | Mandatory | Optional |
| Withdrawals | Not allowed till subscriber reaches the age of 60 | No limits on withdrawals |
| Tax Rebate | Up to Rs 2 lakh per annum | None |
| Minimum contribution | Minimum amount per contribution: Rs 500 Minimum contribution per year: Rs 1,000 per annum | Minimum amount per contribution: Rs 250 Minimum contribution per year: No conditions |
| NPS contribution (Maximum) | No limit | No limit |
How Long It Takes to Activate NPS Account
The time duration for the NPS account opening process depends on the mode of registration. The offline registration can take over 10 days, while the online registration can be finished in a few minutes.
Minimum Investment In NPS
The minimum investment amounts for Tier 1 and Tier 2 of NPS are given below.
| Tier I | Tier II | |
| Minimum amount per contribution | Rs 500 | Rs 250 |
| Minimum amount per year | Rs 1,000 | No conditions |
How to Open NPS Account Online
To open NPS account online, you will have to visit the website of one of the Central Recordkeeping Agencies (CRA). They are responsible for maintaining the database of NPS subscribers. Here’s how you can open new NPS account:
Step 1: Open the registration link of one of the CRAs.
- Computer Age Management Services Ltd
- KFin Technologies Limited
- Protean eGov Technologies Ltd
Step 2: Enter your mobile number, Permanent Account Number (PAN) number and email ID.
Step 3: Verify the OTP sent to your phone.
Step 4: Follow and complete the relevant instructions on the screen.
Step 5: You will get your PRAN (Permanent Retirement Account Number) after finishing the formalities. It can be used to login to your NPS account.
How to Open NPS Account Offline
To perform your NPS account opening offline, you will have to visit your nearest Point of Presence(PoP). PoPs help in registering your NPS application. Here are the steps for NSDL NPS registration.
Step 1: Locate your nearest PoP.
Step 2: Visit the PoP and fill up the application form.
Step 3: Fulfill the KYC norms by submitting all the relevant documents.
Step 4: You will have to pay a minimum of Rs 500 for a Tier I account.
Step 5: Submit the application form
You should receive your PRAN kit via post. It can take more than 10 days.
How to Open NPS Account in Post Office
Head post offices throughout India serve as PoPs. You can visit any head post office, and follow the steps described in the previous section to open your NPS account.
Pension schemes are an important way to ensure financial security in old age. The Government of India launched the NPS in 2004 for its employees but later opened it to all citizens of India. Hopefully after reading this blog you have a fair idea regarding NPS account opening and how to avail its benefits.