National Pension System (NPS)

Here we get the all information about National Pension System (NPS). This pension system is available in India for government employee. The other citizen of Indian can get benefit of this scheme.

Preface

The Central Government of India introduced the new pension system for government employee. This is known as “National Pension System”. The short name of this scheme is NPS. This scheme was come in to force w.e.f. 01.01.2004. The Armed force is excepted from this scheme. The NSDL is CRA for NPS. CRA is carrying out the function of the record keeping, subscriber and maintain database of each PRA. It also records the transaction of each PRAN.

In NPS, government employee contributes towards pension from monthly salary along with matching contribution from the employer. The fund will be invested in en marked investment scheme through PFM.

NPS, Pension system
National Pension System

Full forms

  • NPS – National Pension System
  • NSDL – National Securities Depository Limited
  • CRA – Central Record Keeping Agency
  • PRAN – Permanent Retirement Account Number
  • PRA – Permanent Retirement Account
  • PFM – Pension Fund Managers
  • SBI – State Bank of India
  • LIC – Life Insurance Company
  • UTI – Unit Trust of India
  • PFRDA – Pension Fund Regulatory and Development Authority
  • POP – Point of Presence
  • POP-SPs – Point Of Presence Service Provider
  • KYC – Know Your Customer
  • NRI – Non Resident Indian
  • ASP – Annuity Service Provider
  • ICICI – Industrial Credit and Investment Corporation of India Ltd
  • HDFC – Housing Development Finance Corporation
  • DA – Dearness Allowance

NPS scheme information

The Ministry of Finance issued Gazette n notification on dated 31.01.2019 regarding NPS. As per this notification, the subscriber has option for selecting the Pension Funds. He can choose any pension fund for investment from available in his Tier-I account. If the subscriber is not choose any investment option, it will be invested in existing default scheme of the three following PFM.

  • LIC Pension Fund Limited
  • SBI Pension Funds Pvt. Limited
  • UTI Retirement Solution Limited

The subscriber can select any of the investment scheme from the following.

  1. Default Scheme – LIC, UTI and SBI in predefined proportion.
  2. G Scheme – Investment in Government Bond and related instruments.
  3. LC 50 Scheme – Life Cycle Fund where the Cap to Equity investment is 50% of the total asset.
  4. LC 25 Scheme – Life Cycle Fund where the Cap to Equity investment is 25% of the total asset.

Benefits

The government has roll out NPS for all citizen of India in 2009. After that any citizen of India can take benefit of the NPS. There are two types of account under this scheme. These types are as under.

Types of account

Tier-I

  • It is mandatory account.
  • You cannot withdraw the money from this account till your retirement.
  • After retirement, there is some restriction for withdrawal of money. You can withdraw 60% money of total amount and you have to invest 40% money of total amount in annuity from PFRDA listed insurance company. You can get monthly interest from the invested money.

Tier-II

  • It is voluntary account.
  • You can withdraw money any time.

Account opening procedure

You have to fill up the subscriber registration form and submit it along with proof of identity, address and date of birth to POP. PRAN card will be provided to you. It is has 12 digit number. It is your permanent retirement account number.

Most of Banks, both private and public sector and several financial institutes are work as POP. POP-SPs act as collection points.

You can access your near by POP through website of PFRDA.

Any Indian citizen between 18 to 60 years can join the NPS. The condition is that they have to comply with their KYC norms. NRI also can join the NPS. If there is change in citizenship of the NRI, the account will be closed.

This scheme allows subscriber to contribute regularly in a pension account during their working life. On retirement, subscriber can withdraw the 60% of the total amount and remaining 40% to buy annuity to secure a regular income after retirement.

Contribution

  • You have to contribute minimum Rs.6000/- in Tier-I account.
  • If you don’t contribute the minimum amount, your account will be frozen. You can unfreeze the account by visiting the POP. For this, you have to pay the minimum required amount and penalty of Rs.100/-.

Withdrawal from NPS

You have to submit the withdrawal application to POP along with relevant documents. The POP forward it to CRA and NSDL. CRA will register your claim and forward you the application form along with detail documents that need to submit. Once you complete all necessary procedure, CRA processes the application and settle the account.

Documents required along with withdrawal form

  • PRAN card (original)
  • Attested copy of the proof of identity
  • Attested copy of proof of address
  • A cancelled cheque

Withdrawal different criteria

Discontinue the contribution

The CRA / NSDL will freeze your account. They will active the account after minimum contribution along with penalty.

Subscriber dies before 60 years

The CRA / NSDL will pay the whole amount to the nominee / legal hair of the the subscriber.

Completion of 60 years

NPS is a pension account. After completion of 60 years, subscriber can withdraw the 60% out of total amount and the remaining 40% amount have to invest in annuity. From the annuity, the subscriber can get the monthly pension. You can defer the withdrawing amount in NPS until you are 70 years old.

Withdrawal before 60 years

You can withdraw only 20% from the whole earned amount. You must have to invest 80% amount for annuity.

Half Withdrawal

The government servant can withdraw 50% amount of his contribution in the following condition.

  • Purchase of Home
  • Critical disease

Annuity

An annuity provides a regular income to the subscriber. The regular income is with specified rate and period. The subscriber must use 40% of amount to buy annuity. In this way, the subscriber pay the money to ASP and choose annuity option for regular income after retirement.

List of Annuity Service Provider

  • LIC
  • SBI life Insurance
  • ICICI Prudential Life Insurance
  • Bajaj Allianz Life Insurance
  • Star Union Dai-Inchi Life Insurance
  • Reliance Life Insurance
  • HDFC standard Life Insurance

Different annuity option offered by Annuity Service Provider

Annuity Service Provider offers slightly differ or combination of the following option.

  • Pension (annuity) payable for life at a uniform rate to the subscriber.
  • It is payable for 5,10,20 years certain and then after as long as you are alive.
  • Pension for life with return of purchase price on death of the subscriber.
  • It is payable for life increasing at a simple rate of 3%.
  • Pension for life with a provision of 50% of annuity payable to spouse during his/her lifetime death of the subscriber.
  • Pension for life with a provision of 100% of the annuity payable to spouse during his/her lifetime on the death of the subscriber.
  • It is for a life with a provision of 100% of the annuity payable to spouse during his/her lifetime death of the subscriber and with return of purchase price on death of the spouse.

Tax benefit in NPS

  • An employee’s own contribution is eligible for a tax deduction up to 10% of the salary (Basic plus DA) under section 80CCD of income tax act. The contribution within the overall ceiling of Rs.1.5 lakh allowed under section 80C and section 80CCE.
  • The employee’s contribution to NPS is exempted under section 80CCD(2).
  • An individual can claim an additional deduction up to Rs.50000/- under section 80CCD(1B). It is in addition to 1.5 lakh permitted under section 80C.
  • A self employed person can also contribute 10% of his gross income under section 80CCD(1) in NPS.
  • The annuity income is added in the income and taxed as per the income tax slab applicable to you.

All NPS scheme related forms are available on NPS website.

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