About National Pension System (NPS) and Key Stakeholders

1st January 2004 marks a new era in Indian Pension industry. The Union Government introduced National Pension System (NPS) scheme as a mandatory scheme for all Central Government employees including employees of Central Government Autonomous Bodies in place of old defined benefit pension scheme.

Later on in 2008, this scheme was introduced as a mandatory scheme for all State Government employees including employees of State Government Autonomous Bodies in place of old defined benefit pension scheme.

On 1st May 2009, NPS was made available to all citizens of India on a voluntary basis with the objective of extending old age security coverage to all citizen and providing old age income by reasonable market based returns over long run. It was termed as All Citizen of India model, which is actually Retail NPS.

Subsequently, in order to bring employees working with various Companies across India under NPS, the Corporate NPS model was introduced in 2011.

This scheme is regulated by PFRDA (Pension Fund Regulatory & Development Authority). Any KYC compliant Citizen of India including NRI and OCI between the age group of 18 – 70 years can join NPS.

Tax Benefits for Self Employed & Salaried Individuals under NPS

NPS not only helps you plan for your retirement, it allows you to save tax at the same time. Whether you are looking for tax saving opportunities within 80C or beyond, NPS offers you both. Yes, that is correct!

Also, no matter whether you are self employed or working with a Corporate, NPS offers exclusive tax benefits over and above 80C limit for both. Further, if your  80C limit is not exhausted, you can still invest in NPS to avail tax benefits under 80C.

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Happy Retirement is possible with passive income !

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Why to invest in Nps ? 

Low Cost Product

NPS operates at extremely low Fund Management charge as compared to 1.25%

Flexible Contribution

You get the option to opt for NPS SIP or make ad-hoc contributions into your NPS

account.In order to keep the account active, only an annual contriubtion of Rs.1000/-

needs to be made to a Tier I NPS Account.

Transparent & Well Regulated

NPS is prudently regulated by Pension Fund Regulatory and Development Authority

( PFRDA ).Once a NPS account is opened, you can simply log in to the account & check
your balances, make transactions. Access to your NPS account is just a click away.

Portable (transferable) Account

If you change your job or move anywhere across the country, 
you can continue to invest in NPS with the same PRAN allotted initially.

Choose your Portfolio

NPS offers you the option to not only choose your portfolio as per your risk appetite, 
it offers the flexibility to re-align your portfolio without incurring cost / capital gain tax.

Tax Benefit for Self Employed Individuals

Exhausted your 80C limit?
You can invest up to Rs.50,000 and avail tax deductions u/s 80CCD (1B) of Income Tax Act, 1961.

This tax benefit is over & above the tax benefits claimed by you for your investments of up to Rs. 1.5 lakh under 80C.

You have not exhausted your 80C limit yet?
You can invest up to 20% of your Gross Annual Income. This amount to the extent of 1.5 lakh is eligible for tax deduction u/s 80CCD (1) of IT Act, 1961.

Additionally, you can invest up to Rs.50,000 and avail tax deduction u/s 80CCD (1B)

Tax Benefit for Salaried Individuals

Exhausted your 80C limit?
You can invest up to Rs.50,000 and avail tax deductions u/s 80CCD (1B) of Income Tax Act, 1961.

This tax benefit is over & above the tax benefits claimed by you for your investments of up to Rs. 1.5 lakh under 80C

You have not exhausted your 80C limit yet?
You can invest up to 10% of your Salary (Basic + DA). This amount to the extent of 1.5 lakh is eligible for tax deduction u/s 80CCD (1) of IT Act, 1961.

Additionally, you can invest up to Rs.50,000 and avail tax deduction u/s 80CCD (1B)

Additional Tax Benefit for Salaried Individuals under Corporate NPS

Under Corporate NPS scheme, employees get additional tax benefits on investment routed through their employer. Such investment up to 10% of Salary (Basic + Dearness Allowance) to the extent of Rs 7.5 lakh is deductible from taxable income u/s 80CCD (2) of Income Tax Act, 1961.

Types of National Pension System Accounts – Tier 1 & Tier 2 NPS Accounts

NPS offers a subscriber the option to save for retirement as well as for emergency needs.

These are two NPS accounts Tier I and Tier II. Tier I account is used for retirement savings, Tier II account can be used for savings for emergency needs. Operating guidelines for Tier I and Tier II account are as mentioned below:

Tier I NPS Account

It is mandatory to open Tier I NPS account if you wish to join NPS

Withdrawal from this account is restricted and conditional.

You can open Tier I NPS Account with a contribution as low as Rs.500/-. To keep the Tier I NPS Account active, you need to deposit a minimum of Rs.1,000 each year.

Tier II NPS Account

Tier II NPS Account is optional and can be opened either at the time of Tier I NPS Account opening or later.

You can withdraw from this account anytime.

Tier II NPS Account can be opened with initial minimum contribution of Rs.1,000/-. There is no requirement of depositing any minimum amount each year to keep the Tier II NPS Account activ

Understanding Auto and Active Investment Choices in National Pension System

NPS offers you the flexibility to select the investment strategy as per per your choice. There are 4 asset classes and 2 investment strategies available to you under NPS as shown below.

 

Asset Classes (Funds) under NPS

There are 4 asset class options under NPS – Equities, Corporate Bonds, Government Securities and Alternative Investment Funds. These are also known as E, C, G and A asset class respectively. Each asset class has its risk profiling and exposure as shown below:

Investment Strategies

Based on your risk appetite, financial knowledge and future goals you can choose the percentage you want to allocate and invest in these four asset classes by selecting one of the two investment approaches available under NPS.

 

Active Choice

With Active Choice strategy, you get the flexibility to decide your own asset mix across 4 asset classes E, C, G and A. You should select Active Choice if you want to have complete control over your NPS investments and trust your financial understanding.

If you are up to 50 years of age, you can opt for equity exposure up to 75%  after which the exposure to equity asset class will be reduced by 2.5% each passing year. Please click here to see the chart.

You are free to invest up to 100% in asset classes C and G. In the asset class A, maximum investment can be up to 5%.

 

Auto Choice

It is a convenient option to select if you want the risk associated with your investments to auto-adjust as you approach retirement and hence its also knows as Life Cycle Fund Option.

There are 3 Life Cycle Fund Options named as LC 75, LC 50 and LC 25 which are also known as Aggressive Auto Choice, Moderate Auto Choice and Conservative Auto Choice respectively.

Under Auto Choice mode, investments are done across three asset classes E, C and G as per your age. Please click here to see the chart.

Re-alignment of your portfolio under Auto Choice is a system driven activity and is exercised on your birthday each year. With age, the risk associated with your NPS account reduces to ensure that fluctuations in your accumulated corpus are avoided and you have a happy, secured retirement.

Flexibilities under NPS

NPS offers you following flexibilities in terms of managing your funds:

  1. You can have different Investment Choice (Auto / Active) for Tier I and Tier II NPS account

  2. You can change the Asset Mix and Investment Choice twice in a financial year for both Tier I and Tier II NPS Account

  3. You can change the Pension Fund Manager once in a financial year.

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Steps to open NRI/OCS NPS Account

You can open your NPS account (PRAN) in 5 minutes and save tax. Yes, that’s correct! NPS registration is a completely digital process which can be completed in 4 simple steps.

Keep the below mentioned documents ready:

  1. Ensure your mobile number is linked with your Aadhaar

  2. Self-attested copy of Bank account proof (cancelled cheque with your name printed)

  3. Signature specimen (sign on a blank piece of paper and keep a photo of it handy)

How it works

Click Here to begin!

Register yourself

Make the initial contribution, complete e-sign and generate PRAN instantly

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