NPS or National Pension System is a government-sponsored pension scheme. It was launched way back in January 2004 only for government employees. It was opened in 2009 to all sections of society.
NPS allows you to make regular contributions across working life. At retirement, you can withdraw part of the corpus as a lumpsum and the remaining corpus must be compulsorily used to avail an annuity plan. The annuity plan offers a steady pension (This is regular income in retirement).
If you are between 18 and 60 years you can invest in NPS. You must comply with KYC norms. Even NRIs can join the National Pension System. If there is a change in the citizenship status of the NRI, the NPS account would be closed.
Simply open an NPS account with an entity known as Point of Presence (POP). Both private and public sector banks function as POPs. The collection points are the POP-SPs or Point of Presence Service Providers.
Note: If you want to find a Point Of Presence, access the Pension Fund Regulatory and Development Authority (PFRDA) website. Fill the subscriber registration form and make a submission along with identity and address proof to the Point Of Presence.
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NPS belongs to the EET Tax Regime. This is Exempt-Exempt-Taxable (EET) status. You enjoy a tax deduction up to Rs 1.5 Lakhs a year under Section 80C of the income tax act. The amount accumulated is also tax-free. Withdrawals are taxed.
You also get an additional deduction under Section 80CCD(1B) up to Rs 50,000 a year. This is over and above the Section 80C benefit.
You are expected to stick to the NPS until retirement. (This is 60 years of age). At the age of 60 years, you can use at least 40% of the NPS corpus to avail an annuity plan from a PFRDA-Listed insurer. The remaining 60% is tax-free.
You have 2 choices:
Active Choice: You get to decide how the money must be invested across asset classes.
Auto Choice: This is the default option where money is invested in line with subscriber’s age.
The active choice offers 3 investment options. Asset Class E invests 50% in stocks. The Asset Class C invests in fixed income other than government securities. The Asset Class G invests only in government securities.
NPS has two accounts. They are NPS Tier-I which is a mandatory account. You cannot withdraw money from the NPS Tier-I account till retirement. NPS Tier-II is a voluntary account. You have to make a minimum contribution of Rs 6,000 a year to the NPS Tier-I account.
Visit the NPS Website: You must visit the www.npstrust.org.in/ website. Visit the eNPS and choose National Pension Scheme. You have the Online Subscriber Registration Form.
You have choices like “Individual Subscriber”, “Corporate Subscriber”. Select Individual Subscriber.
Register Using PAN: Register your PAN and make sure bank account is linked with PAN. The bank charges Rs 125 + taxes after verifying KYC. The money is debited from bank account.
Register with Aadhaar: You have to fill in the Aadhaar number and an OTP (One Time Password) is sent to mobile number for authentication.
You get a Permanent Retirement Account Number or PRAN after submitting the online application. You can use PRAN while making investments in the NPS.
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