National Pension Scheme 2024 (NPS) – Govt Approved Pension Scheme

What is National Pension Scheme?

The National Pension Scheme, also known as National Pension System, is open to all employees from the public, private, and even the unorganized sectors except those who work in the Armed Forces. In the NPS scheme, the subscribers can make a minimum contribution of Rs. 6,000 in a financial year, which can be paid as a lump sum or as monthly instalments of a minimum of Rs. 500.

Minimum NPS Contributions

In the NPS scheme, the contribution of the subscribers is invested into the market-linked instruments like debt and equity and the returns depend on the performance of these investments. The current interest rate of NPS is 9% - 12% on the contribution made.

Any Indian citizen from the age group of 18 years to 60 years can open the National Pension Scheme account. Regulated by PFRDA, the National Pension Scheme matures at the age of 60 years and can be extended up to 70 years. The NPS scheme allows the subscribers to make partial withdrawals of up to 25% of the contribution after 3 years of opening the account in specific situations like purchasing a home, sponsoring a child's education, or for the treatment of any critical illnesses.

National Pension Scheme - NPS Benefits

The following are the benefits of the National Pension Scheme.

• Returns/Interest

  A portion of the contribution made towards the NPS scheme is invested in equities, which offer higher returns as compared to other traditional tax-saving investment options like PPF. With an interest rate of 9%-12%, this pension plan is best suitable for individuals who want to accumulate funds in the long term and have a financially secure life after retirement.

• NPS Tax Benefit

  This is another NPS benefit offered to the individuals. The contribution made towards the NPS scheme up to the maximum limit of Rs.1.5 lakhs is eligible for tax exemption under Section 80C of the Income Tax Act. Moreover, in the National Pension Scheme, the contribution made by the employer and the employee are both applicable for the tax exemption.

• Premature Withdrawals and Exit Rules

  As a pension plan, it is mandatory to invest in National Pension Scheme until 60 years of age. However, partial withdrawals are allowed after 3 years from the date of opening the account. The subscribers can withdraw up to 25% of the total contribution made. Premature withdrawal is only applicable in case of specific circumstances like sponsoring a child's education, purchasing a house, or in case of any medical emergency. The subscribers can make a withdrawal up to 3 times in the intervals of 5 years in the entire tenure. These rules are only applicable to the Tier I account and not on the Tier II accounts.

• After 60 Withdrawals Rules

  In the NPS scheme, the individual cannot withdraw the entire accumulated fund from the account after the retirement. In this scheme, it is mandatory to keep aside at least 40% of the accumulated fund to receive a regular annuity from the PFRDA registered insurance firm. The remaining 60% of the accumulated fund is tax-free.

• Equity Allocation Rules

  In NPS scheme, the investments are made into a different scheme. As per the equity allocation rule, the investors can allocate a maximum of 50% of their investment in equities. There are two options of investments available to invest in, i.e., active choice and auto choice. The active choice allows the investors to choose their fund and split the investment as per their risk appetite and suitability on the other hand, in auto choice the investment is made considering the risk profile and age of the investors.

• Risk Assessment

  Currently, on equity exposures of the NPS scheme, a cap between the range of 75% to 50% exists. For government employees, this cap is 50%. In the prescribed range, the equity portion will reduce by 2.5% every year starting from the year in which the investors will turn 50 years old. This balances the equation of risk-return for the investors that mean the invested fund is safe from the volatility of the equity market. This scheme offers a higher earning potential as compared to other fixed-income schemes.

• It is Voluntary

  In the NPS scheme, the subscriber can contribute anytime during a financial year and can also change the amount he/she wants to invest every year.

• Offers Flexibility

  National Pension Scheme offers flexibility as subscribers can choose their option of investment and pension fund and see their investment grow.

• It is Simple

  The subscribers can open the NPS account by visiting the website of eNPS(https://enps.nsld.com/eNPS/) or at any one of the Point of Presence (POP).

• It is Regulated

  The NPS scheme is regulated by the Pension Fund Regulatory and Development Authority of India (PFRDA). With regular monitoring and transparent investment norms, NPS offers transparency and reliability to the subscribers.

National Pension Scheme Returns

A national pension scheme does not have a fixed rate of interest, but the returns are based on the market performance of the funds as the investments are made in market-linked securities. The contribution made towards the NPS scheme can be invested in 4 different asset classes like equities, government bonds, corporate bonds, and alternative assets through different pension funds. The returns offered by these pension funds depend on the market performance of the stocks and bonds.

Best NPS Returns 2023

The National Pension Scheme is one of the most popular annuity products in the country. Investing in the NPS scheme not only provides an advantage to the investors over other fixed-income schemes but also offers the perk of tax exemption Under Section 80C and 80CCD of the Income Tax Act. It comes with a lock-in period till retirement, however, it allows premature withdrawals in specific circumstances. Under the National Pension Scheme details, the investors are also given the advantage to allocate their investment. Investors can choose the option to invest in funds either automatically or manually.

National Pension Scheme Tax Benefits

The National Pension System allows tax exemption on the contribution made towards the scheme up to the maximum limit of Rs. 1.5 lakh under section 80C of the Income Tax Act. Moreover, in the NPS scheme, the contribution made by the employer and the employee are both applicable for the tax exemption.

80CCD (1)- This is a part U/S 80 of self-contribution. The maximum deduction up to 10% of the salary can be claimed for tax exemption under this section. For the taxpayers who are self-employed, this limit is 20% of the gross income.

80CCD (2)- This section covers the contribution made by the employers towards the NPS scheme. This benefit does not apply to self-employed taxpayers. The maximum amount entitled to the tax exemption is the lowest of the: A. Actual NPS contribution by employer B. 10% of Basic + Dearness Allowance C. Gross total income.

You can claim any additional self contribution (up to Rs 50,000) under section 80CCD(1B) as National Pension Scheme (NPS) tax benefit.

Features of NPS

As a government-sponsored pension scheme, here we have mentioned some of the National Pension Scheme details and some of the salient features of the NPS:

• A portion of the national pension scheme goes into equities.

• The returns offered by National Pension Scheme are much higher as compared to the traditional tax-saving investment instrument such as PPF.

• Pension plan offers 9%-12% annualized returns.

• In case, the individual is dissatisfied with the performance of the fund then he/she can change the fund manager.

• Up to the maximum deduction of Rs. 1.5 lakh can be claimed in NPS under section 80C of the Income Tax Act.

• For the Tier-I account, the subscribers are required to make a yearly contribution of Rs. 6,000 and Rs. 500 as a one-time contribution. For the Tier-II account, the subscribers are required to make a yearly contribution of Rs. 2000 and Rs. 250 one-time contribution.

• One cannot withdrawal the entire corpus from the national pension scheme after retirement.

• In NPS account one can only withdraw 60% of the fund after retirement and the rest 40% of the fund is invested in the pension scheme to receive a regular pension.

• An individual can open an NPS account through the online or offline process.

• One can make a withdrawal for up to 3 times within 5 years of intervals in the entire tenure.

• After completion of 3 consecutive years of NPS account, one can make a withdrawal of up to 25% of the accumulated fund for a specific purpose such as medical treatment, higher education, marriage, buying a house, etc.

Fees and Applicable Charges of NPS Scheme

Eligibility Criteria of NPS Scheme

• Any Indian citizen can open the NPS account.

• The minimum age eligibility for opening the NPS account is 18 years whereas the maximum age limit for opening the NPS account is 65 years.

• The applicant should be KYC compliant.

• The applicant should both have any pre-existing NPS account.

Types of NPS Account

There are two types of accounts that NPS offers:

Tier-I Account

It is a basic pension account with limitations on withdrawal 

Before attaining 60 years of age, only 25% of the contribution can be withdrawn while the rest 75% has to be necessarily used for buying the annuity from a life insurer. An annuity is a series of payments made at fixed intervals of time. Annuity plans necessitate the insurer to pay the insured income at regular intervals until his death or till maturity of the plan. 

After attaining the age of retirement also (60 years), close to 60% contribution can be withdrawn and the rest 40% again has to be used to purchase the annuity from approved life insurers.

Tier-II Account

It is a voluntary savings option from which a person can withdraw money limitless. 

National Pension Scheme Fund Managers

The individual/organization that takes decisions regarding any portfolio of investment (mostly a mutual fund, pension fund, or insurance fund), as per the stated goals of the fund. It is necessary to opt for a fund manager while opening the account.

The money is managed by seven fund managers appointed by the PFRDA. Following are the pension funds registered under the National Pension Scheme.

Pension Funds for Government Sectors

• LIC Pension Fund Ltd.

• SBI Pension Fund Pvt. Ltd.

• UTI Retirement Solutions Ltd.

Pension Funds Other than Government Sectors

• ICICI Prudential Pension Fund Management Co. Ltd.

• HDFC Pension 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.

Features of NPS Tier-1 and NPS Tier-2 account

Difference Between NPS Tier-I And Tier-II Account

As National Pension Scheme allows individuals to make systematic investments, liquidity is never an issue. To enjoy liquidity benefits, the subscriber needs to have any of the below-mentioned accounts along with a unique Permanent Retirement Account Number (PRAN).

Tier-I Account

• Functions as a pension account

• Withdrawn are subject to specific restrictions

• The account can be opened with a minimum deposit of 500 rupees

Tier-II Account

• Functions as voluntary account

• Offers liquidity of funds through investments and withdrawals

• Account can be opened with a minimum deposit of 250 rupees

• Tier-I account needs to be active to open a Tier-II account

Let us look at the table to understand Tier-I and Tier-II account of the National Pension Scheme better

This table gives you a wide idea as to how Tier-I and Tier-II account for National Pension Scheme works. Study the table carefully and make an informed decision.

*Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product by an insurer or any other financial product.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C applies.

Types of Funds in the National Pension Scheme in India

Depending on how open the investor is to risk, the corpus can be divided among these three fund classes. Exposure to equity cannot be more than 50%. However if the allocation is not specified, the exposure to various classes, especially equity is decided on the basis of age. 

The above figure also tells us about the average performance of National Pension Scheme funds in different classes.

The investment mix according to the age of the investor: 

So with increasing age, the investment corpus gets more inclined towards Debt

NPS Account for NRI

Non-Residential Indians (NRIs) can also open a National Pension Scheme account and can make full use of the benefits they carry. The NPS is a retirement savings scheme launched by the Government of India with an objective to secure the life of an individual financially after retirement. The eligibility criteria for NRIs who want to open an NPS account are.

• The individual should age between 18 years -60 years.

• The individual must complete the KYC norms.

• OCIs and PIOs are not eligible.

• The contribution towards the national pension scheme should come either from an NRE or NRO account.

Features and Benefits of National Pension Scheme Account for NRI

• The investment portfolio of the NPS account is highly diversified and offers the flexibility to the investors to choose the ratio of funds that should be allotted across different investment options.

• Investment can be made in different assets such as corporate bonds, equity, and government securities.

• As per the risk appetite of the investor, up to 85% of the fund can be diverted to the corporate bond or equity or government securities.

• NPS offers two types of investment options for NRIs:

• Active Choice - the NRI investors can decide the ratio of investment and asset classes.

• Auto Choice - Based on the age of the investor, the investment is done on behalf of the NRI investor.

• Every subscriber is given PRAN card with 12-digit unique identification number.

How to Open an NPS Account

The Pension Fund Regulatory and Development Authority of India regulates the operations of the National Pension Scheme. PFRDA offers both online and offline process to open an NPS account. The individuals can register and obtain the subscription for the NPS scheme through the online platform of eNPS or the offline process. Let's take a look at how to open an NPS account.

• Online Process

  An individual can now open an NPS account in a simple and hassle-free way. To open an NPS account online, it is important to link the account to the PAN, Aadhaar, and mobile number.  Let’s take a look at the steps to open the NPS account online. 

  • Go to the website of enps.nsdl.com.

  • Choose the type of subscribers from the available option' corporate subscriber' and 'individual subscriber'.

  • Choose the appropriate residential status. The option includes “ India Citizens” and “NRI”.

  • Select for either Tier I account type or both the accounts as it is mandatory for long-term savings.

  • Enter the PAN details and choose a suitable POP or bank.

  • Click on the registration and choose the option of ‘register with Aadhaar’.

  • Enter the Aadhaar number and click on the option of ‘generate OTP (One Time Password)’.

  • An OTP will be sent to the registered mobile number.

  • Enter the OTP along with personal information, bank details, and nomination details.

  • Once the application form is successfully submitted, the Permanent Retirement Allotment Number (PRAN) will be allotted to the applicant.

  • Once the individual submits the e-signature and photograph and OTP will be sent to the registered mobile number.

  • Enter the OTP to verify the signature and make payment.

  • Once directed to the payment gateway, process to make payment of the required charges via net banking.

  • Once the payment is done successfully, the permanent retirement account number will be generated

• Offline Process

  To open the NPS account manually or offline, the individual will require finding Point of The individual will require collecting the subscriber form from the nearest PoP and submitting it along with the completed KYC papers. Once the individual makes the initial investment, the point of presence will send you a Permanent Retirement Account Number (PRAN). The PRAN number and password in the sealed welcome kit will help the individual to operate the account. The offline process to open the NPS account includes one-time registration fees of Rs.125.

  While this is the process of registration for the National Pension Scheme for all subscribers, the NRIs need to complete a few additional steps to complete the process.

  • Choose the status of the bank account i.e. repatriable or non- repatriable.

  • Provide the details of the NRE or NRO bank account along with a scanned copy of the passport.

  • Choose an appropriate communication address i.e either overseas address or permanent address.

  • Once the permanent retirement account number (PRAN) is allotted the applicant will need to proceed further for the authentication.

  • For the e-sign option, the applicant will need to choose the option of e-sign from the E-sign/ print & courier page.

  • Authenticate with OTP sent on the registered mobile number. Note that the number should be linked with your Aadhaar Card.

  • After Aadhaar authentication, the registration form is successfully signed.

  • It is important to note that a service charge is applicable for NRIs for E-signing the registration form.

Comparing NPS with Other Tax Saving Investment Options

Besides NPS, the other popular tax saving investment instruments available in the market U/S 80C are Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), and tax-saving fixed deposits (FDs). Let’s take a look at the comparison between NPS and other tax-saving instruments.

The NPS can earn higher returns as compared to PPF and FDs, however, it is not as tax-effective on maturity as compared to other investment options. For example, the subscribers can withdraw 60% of the accumulated fund from the NPS account on maturity. However, out of this 60%, 20% is taxable. The taxability on NPS scheme withdrawals is subject to change.

Who Should Invest in NPS scheme?

Any individual aged between 18 years and 60 years can open the National Pension Scheme Account.

National Pension Scheme is best suited for individuals who are unable to decide their asset allocations or do not have time to manage their investment.

An NPS is a completely government-backed scheme and any person who wants to plan their early retirement and does not wish to take high-risks should undoubtedly go for it.

A salaried person who wants to take the best advantage of 80C deductions, should consider National Pension Scheme.

Eligibility Criteria

A person planning to retire should go for NPS scheme. The following person can buy National Pension Scheme

• Any India residing citizen can open the NPS account

• The minimum age eligibility for opening the NPS account is 18 years whereas the maximum age limit is 65 years

• The applicant should be KYC compliant

The applicant should not have any pre-existing NPS account

National Pension Scheme Calculator

National Pension Scheme calculator allows the subscriber to compute the provisional lump-sum and pension amount.

At the time of retirement based on the monthly contributions, a subscriber can expect:

• The annuity purchased

• The expected rate of returns on investments

• The annuity

Who Can Use NPS Calculator?

As per National Pension Scheme rules, any individual aged between 18 years and 60 years can open the National Pension Scheme Account, and hence can use NPS Calculator.

How To Use NPS Calculator?

To use the National Pension Scheme calculator, you have to follow these simple steps:

• Step 1: Enter the amount to be invested every month

• Step 2: Enter your present age

• Step 3: Use the slider to select the expected rate of return

• Step 4: Get results within seconds

Note that, National Pension Scheme calculator illustrates tentative pension amounts and does not guarantee exact numbers.

National Pension Scheme Interest Rate

National Pension Scheme offers a current interest rate of 9% - 12% depending on the subscribers and type of scheme.

National Pension System offers different options of investment to the subscribers and also provides them the option to choose the fund managers as per their choice. Depending on the scheme chosen by the investors NPS offers an interest rate of up to 9%-12% as compared to other investment instruments.

1. NPS Withdrawals

   The withdrawal of the accumulated fund from the NPS account is allowed at the age of 60. However, NPS also offers the facility of premature withdrawals in certain conditions. Let’s take a look at the withdrawal process of NPS.

2. NPS Withdrawal on 60 Years

   In the case of maturity of the scheme in 60 years, the subscribers can withdraw 60% of the accumulated corpus from the NPS account, whereas, the rest 40% of the accumulated amount is used to purchase the annuity. The subscribers will need to provide the withdrawal details and bank account to the aggregator to Upload the information to the CRA system for execution.

3. NPS Withdrawal Before 60 Years

   As a pension scheme, it is compulsory to invest in NPS until 60 years of age. However, partial withdrawals are applicable after completion of 3 years from the date of opening the account. The subscribers can withdraw up to 25% of the total contribution made. Premature withdrawal is only applicable in case of specific circumstances like sponsoring a child’s education, purchasing a house, or in case of any medical emergency. The subscribers can make a withdrawal up to 3 times in the intervals of 5 years in the entire tenure. These rules are only applicable to the Tier I account and not on the Tier II accounts.

4. NPS Withdrawal on Death of the Subscribers

   In case of the demise of the subscribers, the entire accumulated corpus is transferred to the beneficiary or the legal heirs. The beneficiary or the legal heir will have to contact the aggregator with the required documents like identity proof of the beneficiary, death certificate, etc. for the withdrawal of the fund.

5. Types of Withdrawal Forms Available

   The following is the list of different forms available for different categories of withdrawal requests.

6. NPS Withdrawal Forms on Superannuation

   Forms	Applicable For
   Form 101 GS	This form can be used by government employees, who want to make withdrawal post-retirement.
   Form 301	This form can be used by corporate employees and other citizens who want to make a withdrawal on superannuation
   Form 501	Applicable for subscribers who are part of the Swavalamban sector and want to make a withdrawal on the superannuation

7. NPS Withdrawal Forms Before Superannuation

   Forms	Applicable For
   Form 102 GP	This form can be used by government employees, who want to make a withdrawal before retirement.
   Form 302	This form can be used by corporate employees and other citizens who want to make a withdrawal before superannuation
   Form 502	Applicable for subscribers who are part of the Swavalamban sector and want to make a withdrawal before superannuation

8. NPS Withdrawal Form For Claimants on Demise of the Subscriber

   Forms	Applicable For
   Form 103 GD	This form can be used by the beneficiary/legal heir of the government employees, who was an NPS subscriber. The nominee can fill the form to claim the accumulated amount in the account of the subscriber.
   Form 303	This form can be used by the beneficiary/legal heir of the corporate employees and other citizens who were an NPS subscriber. The nominee can fill the form to claim the accumulated amount in the account of the subscriber.
   Form 503	Applicable for the beneficiary/legal heir of subscribers who were part of the Swavalamban sector. The nominee can fill the form to claim the accumulated amount in the account of the subscriber.

National Pension Scheme FAQ's