National Pension Scheme (NPS): Eligibility, Joining Process and Types
National Pension Scheme or NPS scheme is an initiative of the government of India. It is a contribution-based pension scheme that allows a person to create a retirement corpus. Men and women can use it as a saving-investment or post-retirement tool. It was earlier created for government employees only, but since May 2009, it has been extended to include all citizens of India. It is applicable on a voluntary basis and is managed by Pension Fund Regulatory and Development Authority or PFRDA.
National Pension Scheme Benefits
The topmost National Pension Scheme benefits are listed right here.
Income for Old People
- It allows old and retired people to stay independent and financially stable during the last leg of their life.
- The scheme offers reasonable market-based returns if you stick to it for the long haul.
- This scheme offers old age security cover to all Indian citizens.
National Pension Scheme Tax Benefits
- There are many National Pension Scheme tax benefits that an individual can avail. When you invest in Tier 1 NPS, you can get tax benefits of up to INR 2 lakhs per annum. As per section 80C of the Income Iax Act, 1961, deduction amounting to INR 1.5 lakh under NPS is covered. You can also be eligible to get an additional tax deduction of INR 50,000 as per section 80CCD(1B).
- This scheme ensures low default risk to your hard-earned money because the experts handle it.
Eligibility for NPS Scheme
Now, if you are intrigued and you want to join the National Pension System then you should know that any Indian citizen who is between 1 to 65 years of age is free to join NPS anytime given he or she abides by the KYC norms. If a person joins this scheme after he or she is 60 years old, special rules are applied to such a case. Also, a person is free to contribute to an existing NPS account until he or she reaches 70 years of age. NRIs who have a bank account in India and a communication address in the country are also eligible. If an NRI who is contributing to this scheme changes his or her citizenship, the NPS account needs to be closed.
The Joining Process of National Pension System
If you are wondering how to join the National Pension Scheme, then you need to follow these steps.
- Open an account with Point of Presence entities by reaching out to a bank or financial institution that offers it.
- PFRDA can let you know about branches of the point of presence service providers that act as authorized collection points.
You can use the eNPS platform to open an NPS account. In this process, you will need to provide your Permanent Account Number (PAN) and details of a bank account that is impaneled PFRDA as authorities will use it to ensure perfect completion of the KYC process. Here is a sample form
If you are not computer savvy and you fear about how complicated a National Pension Scheme form could be then you should know that there is nothing to be afraid of. You just need to visit the nearest one among Points of Presence appointed by the PFRDA, and they will walk you through it.
Documents You Must Provide
The KYC process needs you to provide the following documents:
- A canceled cheque
- Proof of address (Passport, Aadhar, etc.)
- A self-certified copy of any proof of identity (Aadhar, PAN, etc.)
Things to Remember
While learning the National Pension Scheme details, you should remember that a resident, individual or NRI can have only one NPS account at a time.
You should also know that an NPS account is portable across various jobs, locations, and sectors.
Key Types of NPS Accounts
There are two types of NPS Accounts, Tier 1 and Tier 2.
This is a type of account in which you cannot withdraw the money until you reach 60 years of age. Partial withdrawal is allowed in certain scenarios like critical illness, buying a house or wedding. All central government employees must contribute 10 percent of their basic salary to this account as well as DP and DA. The minimum amount that needs to be contributed in INR 6,000 a year. If you invest in this account, then you can get a tax benefit of up to INR 2 lakh per annum.
This is more like a savings account as there are no restrictions on when and how much money you can withdraw. You need INR 1000 to open this account and need to ensure that it has INR 2000 at the end of the year. There are no tax benefits you can avail by opening this account. It can be said to be a better version of mutual funds’ investments as the costs are 0.25 percent as compared to 1.5-2 percent.
What is NPS Corpus?
NPS corpus simply means the money invested over the years in an NPS account. As per rules, a minimum of 40 percent of the NPS corpus needs to be converted to an annuity when the time for maturity arrives. The annuity amount is tax exempt.
Other Pension Schemes:
- Atal Pension Yojna, Pradhan Mantri Pension Yojna and National pension Scheme
- Pradhan Mantri Pension Yojna
- Best Pension Plans offered by Nationalized (PSU) and Private Insurance Companies