NPS - National Pension Scheme

The National Pension Scheme is a social security initiative by the Central Government. The NPS allows you to make contributions that will help you accumulate a corpus for retirement as well as give you a regular source of income post-retirement. On enrolment an individual is allotted a unique Permanent Retirement Account Number (PRAN).

This retirement scheme encourages Indian citizens to invest into their NPS account throughout their employment period.

Investing in the National Pension Scheme comes with a number of benefits - it offers attractive rates of returns, tax benefits under Section 80CCD, flexibility and portability as it can be transferred across jobs and locations.

Here are some of the key features and benefits of the National Pension Scheme.

1. Diversified Investments: A portion of your NPS investment is invested in equities which offers higher earning potential when compared to debt instruments

2. Tax Benefits: You can get tax benefits for the investments made in the National Pension Scheme under Section 80CCD.

3. Low-cost Investment: NPS is one of the most economical investment schemes available in the market.

4. Portability: You can shift to a different employer, city or state but your PRAN will remain the same.

5. Voluntary Scheme: The NPS is a completely voluntary scheme for Indian citizens.

6. Flexibility: As investors in the National Pension Scheme, you can choose to change your fund manager if you find that your return on investment is unsatisfactory. This option is available to both Tier I and Tier II NPS account holders.

7. Superannuation Fund Transfer: Subject to approval from relevant authorities, the superannuation funds can be transferred to their NPS account without any tax implication by NPS account holders.

While opening your NPS account, you need to choose a fund manager who will professionally manage your investments to optimise your returns.

The investments are managed by ten fund managers who have been appointed by the Pension Fund Regulatory and Development Authority (PFRDA). You can choose between any of the following pension fund managers:

• SBI Pension Funds Pvt. Ltd.

• LIC Pension Fund Ltd.

• UTI Retirement Solutions Ltd.

• HDFC Pension Management Co. Ltd.

• ICICI Prudential Pension Fund Management Co. Ltd.

• Kotak Mahindra Pension Fund Ltd.

• Aditya Birla Sunlife Pension Management Ltd.

• Tata Pension Management Ltd.

• Max Life Pension Fund Management Ltd.

• Axis Pension Fund Management Ltd.

There are two types of NPS accounts, namely Tier-I and Tier-II that are available to NPS subscribers.

• Tier-I

Tier-I account is a basic retirement account that has to be opened if you want to avail the benefits of NPS. Under this account, you must make at least 1 contribution per year. The minimum contribution for opening your Tier-I account is ₹500, with the minimum subsequent contribution also being ₹500.

• Tier-II

Tier-II account is an optional investment account available to subscribers who already have an active Tier-I account, your PRAN for both the accounts will remain the same. Under this account, your minimum contribution for account opening is ₹1000 and the minimum subsequent contribution ₹250.

You can claim tax benefits for your NPS investments under the Section 80CCD of the Income Tax Act. Whether your NPS investment is being made by you (employee) or your employer, you can still claim your tax benefit.

• Tax benefits for Salaried Individual

Your NPS investments are tax exempted up to ₹50,000 under section 80CCD (1B). This benefit is in addition to deduction of ₹1,50,000 under section 80C.

You may invest up to 10% of your basic salary + dearness allowance and claim tax exemption on the invested amount under section 80CCD (1). This tax exemption is subject to a limit of ₹1,50,000 under section 80C of Income Tax Act, 1961.

• Tax Benefits for Self Employed Individual

You will be able claim tax exemption up to ₹50,000 under section 80CCD (1B). This exemption is in addition to the limit of ₹1,50,000 under section 80C.

You may invest up to 20% of your gross annual income and get tax exempted on the invested amount under section 80CCD (1). Under section 80C of the Income Tax Act, 1961, this tax exemption is subject to a limit of ₹1,50,000.

*The above details are for informational purposes only, and is not intended to provide, and should not be relied on as tax advice. You should consult your own tax advisors before engaging in any transaction.

Here’s the eligibility criteria for opening an NPS account:

•  Must be 18 years of age or older; cannot be over 70 years of age

The National Pension Scheme is one of the best retirement-focused investment options available in the Indian market. Here are some of the benefits of investing in this scheme that’ll help you get a better understanding of why you should invest in NPS.

• You can invest in both equities and debt instruments as per your financial goals and risk appetite.

• NPS offers tax benefits under the 80CCD (1) and 80CCD (2) which may help you lower your tax liabilities.

• You can choose your preferred PFRDA-appointed fund manager and also change your fund manager if you wish to do so.

• You can make partial withdrawals under Tier-I account.

• Tier-II NPS account is an investment account where there are no restrictions on the number of deposits and withdrawals.

• Your investment positions in equities decrease as you age, as per the National Pension Scheme conditions, which helps you avoid unwarranted risks.

Note:

*Bajaj Finserv Direct Limited (BFDL) has partnered with Bajaj Financial Securities Limited (BSFL) registered with PFRDA as Point of Presence (POP) for NPS (PFRDA Reg. No. POP325022021) for sourcing leads or distributing the NPS products. By clicking on “Invest Now” you shall be redirected to BFSL Site (Website/App) and the terms and conditions of BFSL shall additionally apply.

Please note that there are no guaranteed returns on Investment in NPS. While NPS is a government scheme, the corpus is created according to the returns, which are generated under the corporate bonds, government securities, and the equity. Hence, the market fluctuations can affect the returns.

** The PFRDA has stated that the transferred funds from EPF to NPS will not be treated as income of the current year and hence, not taxed. You also can’t claim the deduction under the 80CCD for the transferred amount to NPS. Under this section, you can claim deduction for a new investment and not for a transfer. 

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