The National Pension System is an investment and pension scheme introduced by the Indian Government to provide pension and old age security to all citizens. The scheme was rolled out on May 01, 2009, and is regulated by the Pension Fund Regulatory and Development Authority. NPS allows you to contribute regularly to a pension account during your employment.
Upon retirement, you can withdraw part of the corpus in a lumpsum and use the remainder to buy an annuity to secure a regular income. Any Indian citizen above 18 and below 60 years is eligible for the scheme and must comply with the KYC norms. Let us understand the concept better with the FAQs.
How to enrol for the scheme?
You must open an NPS Account online with entities or Points of Presence. Most private and public-sector banks act as the POP. The authorised branches of a POP or point of presence service providers are the collection points. You can access them through the PFRDA website. Submit documents like the subscriber registration form, identity, address, and date of birth proof to the POP.
What is the minimum contribution?
You need to contribute a minimum of Rs. 6,000 to your Tier-I Account in a financial year. Tier-I is a mandatory account, where you cannot withdraw the entire money till your retirement. Even on retirement, you have withdrawal restrictions on the Tier-I account. The subscriber is free to withdraw the entire money from the Tier-II account. You can use the NPS calculator to decide your investment and withdrawal amounts.
Who manages the money invested in NPS?
The money that you invest in this scheme falls under the management of PFRDA-registered Pension Fund Managers. You can invest in the scheme using Active or Auto Choice. Active Choice allows you to decide how the money should be invested in different assets. Auto Choice is the default option which automatically invests money according to your age.
What are the tax benefits?
An employee’s contribution is eligible for a tax deduction, up to 10 per cent of the salary (basic plus daily allowance) under Section 80CCD(1) of the Tax Act within an overall ceiling of Rs. 1.5 lakh allowed under Sections 80C and 80CCE. A self-employed person can also contribute 10% of their gross income in NPS under Section 80CCD (1). Use the calculator on the trading app to get accurate results on the approximate returns.
What are the premature withdrawal rules?
If you are planning to quit contributing to the scheme before you are 60 years old, you can only withdraw 20% of the accumulated corpus. However, you must use 80% of it to buy an annuity. If you discontinue your investment, your account gets frozen. Reactivate it only by making the minimum contribution required with the penalty. Earn profits from the market-linked instrument with an online Demat Account and trade it on exchanges.