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Overview

Are you concerned about retirement planning? Do you want to ensure you can get a decent monthly income, enabling you to live a financially secured post-retirement life? If you are, then you should opt for the National Pension Scheme. A retirement planning-cum-tax saving initiative of the Central Government, NPS is a voluntary contributory pension scheme. The scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) to promote old age income security. NPS is a market-linked product that allows you to create your retirement corpus and flexibly choose from various asset classes and invest in annuity plans.

NPS is an easily accessible, low cost, tax-efficient, flexible and portable retirement savings account.

NPS Account Types and Features

  1. Under the NPS Scheme, you can open two types of accounts; Tier I and Tier II accounts.
  2. Tier I account is the primary account and mandatory for anyone looking to invest in this retirement scheme, while Tier II accounts are optional.
  3. You can make regular contributions of any amount in the Tier I account to get annual tax savings of up to Rs. 200,000.
  4. Tier I account matures only when you retire, at which time you can withdraw 60% of your savings, which falls under EEE tax bracket, making it entirely tax-free.
  5. As a Tier II account holder, you may make regular partial withdrawals but you do not get any tax benefits.

How NPS works?

As an NPS account holder, you need to make regular contributions to create your retirement corpus. The sums accumulated are pooled into a pension fund managed by PFRDA fund managers, and invested in diverse equity, government security and corporate bond schemes. The sums invested in the markets grow and accumulate over the years; generating returns based on their market performance and investment durations. The NPS account matures when you retire, typically around 60 years of age. Upon retirement, you may withdraw 60% of your contributions into the account as a lump sum, with no tax implications; whereas 40% of the accumulated retirement wealth is used to purchase from PFRDA empanelled annuity service providers.

NPS Benefits

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Easily accessible, low cost and flexible investment option

Cashless trading

Facilitates income deductions of ₹150,000 and 50,000 under Sections 80C and 80CCD(1B)

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Assists with retirement corpus creation

Margin Trading

Permits partial withdrawals of up to 25% of the deposit amount, only for specific reasons.

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Portable across jobs and locations across India

Calculator

18,98,372
6,00,000
12,98,372
1,80,000

Amt Withdrawn

8,98,372

Pension Amt invested

10,22,814

Pension/M After retire

5,520

Nps Corporate Contribution

Under NPS Corporate, the employer deducts the employee's contribution from his/her salary and deposits it to the employee's NPS Corporate Account

Tax benefit : Contributions up to 10 percent of an employee's annual salary (basic +dearness allowance) is exempted from Income Tax under section 80CCD(2) of the Income Tax Act, 1968

Flexible: NPS offers three fund options to suit the employee's risk appetite

Portable: The portability option under NPS allows an employee to carry his accumulated corpus to his new employer, if the new employer has subscribed to the NPS corporate

  1. Companies desirous of implementing NPS for Corporate, have to first sign up by filling the corporate registration form

  2. After the corporate submits the corporate registration form to the Point of presence (POP), a corporate registration no. is issued to the corporate by the POP

  3. Once the corporate receives a corporate registration number, the scheme can now be made available to the employees of the corporate

  4. The employee fills up an application form for his individual subscription for NPS. The form captures basic details of the employee in 4 simple steps

  5. Once the individual subscription form is filled up by the employee, the form is submitted to the POP for Individual Permanent Retirement Account No (PRAN) generation. nce the PRAN is generated, the employee now starts contributing towards NPS routed through his/her employer and starts enjoying tax benefit on contributions up to 10% of his/her annual basic salary (includes dearness allowance, if applicable)

  6. At the time of retirement/vesting, the employee can purchase an annuity from any of the Annuity Service Providers from his/her accumulated retirement corpus

NPS Return

Pension Fund Managers Inception Date Tier I Tier II
Scheme (A) Scheme (C) Scheme (E) Scheme (G) Scheme (A) Scheme (C) Scheme (E) Scheme (G)
SBI Pension Fund Funds Private Limited 07-Jul-2010 11.1200 9.6500 4.6800 10.5600 0.0000 9.2800 4.7300 10.3600
UTI Retirement Solutions Limited 07-Jul-2010 11.1200 9.6500 4.6800 10.5600 0.0000 9.2800 4.7300 10.3600
LIC Pension Fund Ltd 07-Jul-2010 11.1200 9.6500 4.6800 10.5600 0.0000 9.2800 4.7300 10.3600
Kotak Mahindra Pension Fund Limited 07-Jul-2010 11.1200 9.6500 4.6800 10.5600 0.0000 9.2800 4.7300 10.3600
ICICI Prudential Pension Funds Management Company Limited 07-Jul-2010 11.1200 9.6500 4.6800 10.5600 0.0000 9.2800 4.7300 10.3600
HDFC Pension Management Company Limited 29-Oct-2013 11.1200 9.6500 4.6800 10.5600 0.0000 9.2800 4.7300 10.3600
Birla Sun Life Pension Management Limited 30-Nov-2017 11.1200 9.6500 4.6800 10.5600 0.0000 9.2800 4.7300 10.3600

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ELSS
ELSS

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ELSS & NPS: Wealth creation with tax savings by Mr. Sachin Jain, Research Analyst – ICICIdirect

Terms & Conditions

The applicant should be between 18 – 65 years of age as on the date of submission of his/her application to the Point of Presence Point of Presence-Service Provider (“POP-SP”).
2. The applicant should comply with the Know Your Customer (“KYC”) norms as detailed in the subscriber registration application form. All the documents required for KYC compliance need to be mandatorily submitted
3. Existing NPS subscriber cannot open another NPS account. In case of duplication of NPS account, CRA shall reject subscriber request.
*Note:
1. Currently, ICICI Securities Ltd. is not offering NPS to NRI
2. HUF, PIO, are not allowed to subscribe for NPS as per regulatory guidelines.
4. The applicant has to ensure that PRAN card application form is duly filled up i.e. photograph, signature, mandatory details, scheme preference details etc and submit within 30 days of online registration days of online registration which is mandatory as per guidelines, failing which CRA (NSDL/KARVY) shall deactivate your NPS (NSDL/KARVY) shall deactivate your NPS (NSDL/KARVY) shall deactivate your NPS account.
5. Tier-I account: The applicant shall contribute his/her savings for retirement into this non-withdrawable account. This is the retirement account and applicant can claim tax benefits against the contributions made subject to the Income Tax rules in force.
Tier-II account: This is a voluntary savings facility. The applicant will be free to withdraw his/her savings from this account whenever he/she wishes. This is a not a retirement account and applicant can’t claim any tax benefits against contributions to this account.
Minimum contribution at the time of account opening and for all subsequent transactions – Rs. 500
· Minimum contribution per year - Rs 1,000 excluding any charges and taxes
· Minimum number of contributions in a year - 01
If the subscriber contributes less than Rs. 1000 in a year, his/her account would be frozen and further transactions will be allowed only after the account is reactivated
· In order to reactivate the account, the subscriber would have to pay the minimum contributions.
Minimum number of contributions in a year -01
· Minimum contribution at the time of account opening – Rs. 1000/- and for all subsequent transactions a minimum amount per contribution of Rs. 250/-
Under NPS, the manner in which your money is invested will depend upon subscriber’s own choice. NPS offers a number of funds and multiple investment options to choose from. In case subscriber does not want to exercise a choice, his/her money will be invested as per the "Auto Choice" option, where money will get invested in various type of schemes as per subscriber’s age. The NPS offers two approaches to invest subscriber’s money:
· Active choice – Individual Funds (Asset Class E, Asset Class C , Asset Class G & Asset Class A)
Subscriber will have the option to actively decide as to how his/her NPS pension wealth is to be invested in the following three options:
Asset Class E - Investments in predominantly equity market instruments.
Asset Class C- investments in fixed income instruments other than Government securities.
Asset Class G - investments in Government securities.
Asset Class A (Maximum allocation up to 5% of investment). Note: Investment in Asset Class A is available only for NPS Tier 1 account. - Investment in Commercial or Residential mortgage based securities, Units issued by Real Estate and/or Infrastructure Investment Trusts and/or Asset backed securities as regulated by SEBI, Alternative investment funds (AIF category I & II) registered with SEBI
Subscriber can choose to invest his/her entire pension wealth in C or G asset classes and up to a maximum of 75% in equity (Asset class E). Subscriber can also distribute his/her pension wealth across E, C and G asset classes, subject to such conditions as may be prescribed by Pension Fund Regulatory and Development Authority (“PFRDA”)
· Auto Choice – Lifecycle Fund
NPS offers an easy option for those participants who do not have the required knowledge to manage their NPS investments. In case subscribers are unable/unwilling to exercise any choice as regards asset allocation, their funds will be invested in accordance with the Auto Choice option. In this option, the investments will be made in a life-cycle fund. Here, the fraction of funds invested across three asset classes will be determined by a pre-defined portfolio.
Tax Benefit available to Individual:
Any individual who is Subscriber of NPS can claim tax deduction up to 10% of gross income under Sec 80 CCD (1) with in the overall ceiling of Rs. 1.5 lac under Sec 80 CCE.
Exclusive Tax Benefit to all NPS Subscribers u/s 80CCD (1B)
An additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs. 1.5 lakh available under section 80C of Income Tax Act. 1961.
Tax Benefits under the Corporate Sector:
a. Corporate Subscriber:
Additional Tax Benefit is available to Subscribers under Corporate Sector, u/s 80CCD (2) of Income Tax Act. Employer's NPS contribution (for the benefit of employee) up to 10% of salary (Basic + DA), is deductible from taxable income, without any monetary limit.
b. Corporates
Employer’s Contribution towards NPS up to 10% of salary (Basic + DA) can be deducted as ‘Business Expense’ from their Profit & Loss Account
A. Upon attainment of the age of 60/65 years:
At least 40% of the accumulated pension wealth of the subscriber needs to be utilized for purchase of annuity providing for monthly pension to the subscriber and balance is paid as lump sum payment to the subscriber. However, the subscriber has the option to defer the lump sum withdrawal till the age of 70 years.
In case of attainment of 60 years, exit before the age of Superannuation/attainment of 60 years, the subscribers can also initiate withdrawal requests in the CRA system which shall subsequently have to be verified by the Nodal Office (POP/Banks) in CRA system. www.cra-nsdl.com
B. At any time before attaining the age of 60/65 years:
At least 80% of the accumulated pension wealth of the subscriber needs to be utilized for purchase of annuity providing for monthly pension to the subscriber and the balance is paid as a lump sum payment to the subscriber.
C. Death of the subscriber:
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.

Charges associated with NPS investment

Charges for investment in NPS & managing funds are very less as compared to other investment products. It is very cost-effective investment option.

Agency Service NSDL - Charges* KARVY - Charges* Mode
CRA-NSDL CRA - KARVY PRA Opening Charges ₹40 ₹39.39 Through Cancellation of Units
Annual Maintenance of units ₹95 ₹57.63
Charges per transaction ₹3.75 ₹3.60
Point of Presence (POP)- ICICI Securities Ltd. Registration (Tier 1 or Integrated Tier 1 & Tier 2) ₹200 Collected Upfront
Initial subscriber contribution/ Regular/Subsequent contribution 0.25% of contribution subject to minimum of ₹ 20 and maximum of ₹25,000
Service Requests as prescribed by PFRDA ₹200
Persistency > 6 months & ₹1000 contribution ₹50/- per annum (only for NPS-All Citizen) hrough Cancellation of Units
Custodian Asset Serving (Per Annum) 0.0032% of Assets under Custody Through Cancellation of Units
Pension Fund Investment Management (Per Annum) 0.01% of Assets Under Management Through adjustment in NAV
NPS Trust Reimbursement of Expenses ( Per Annum) 0.005% of Assets Under Management Through adjustment in NAV
Additional service tax and other charges levied as applicable
In addition, the NPS Trust fees/charges @0.01% per annum will be loaded onto the Net Asset Value (NAV) on daily basis and the accrued charges will be collected by NPS Trust at the end of each quarter. Also, persistency charge would be applicable to NPS-All Citizen Model as per conditions stated in PFRDA circular dated October 31, 2017 (Clarification on Revision of Service Charges to POPs under NPS-All Citizen & Corporate Model)
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