National Pension Scheme (NPS): How to invest, tax benefits and eligibility

Looking for a secure retirement income? Learn how to invest in NPS (National Pension Scheme), its eligibility criteria, and other details about NPS

By Forbes India

Published: Jul 26, 2024 03:18:49 PM IST

Updated: Oct 18, 2024 06:11:13 PM IST

Are you looking to build a stable financial future for your golden years? Then, the National Pension Scheme (NPS) might be worth considering. This government-backed program helps you save for retirement. In this article, we will learn how to invest in NPS via offline and online methods, eligibility criteria, and other details.

What is the National Pension Scheme?

The National Pension Scheme (NPS) is a government program that helps people save for retirement. Earlier, investing in NPS was limited to central government employees, but now, it is open to all professionals in India, even those working in the unorganised sector.

Under NPS, you can contribute regularly to your NPS account during your working years. Upon retirement, you can withdraw a portion of the accumulated amount as a lump sum. The remaining amount is used to provide you with a steady monthly income. The Pension Fund Regulatory and Development Authority (PFRDA), administered by the government of India, regulates the NPS.

How do you invest in NPS using offline and online methods?

The eNPS portal offers a convenient investment method if you're comfortable with online procedures and Internet banking. However, if you prefer in-person assistance or have limited internet access, investing in NPS offline will be a better option.

How to invest in NPS offline

Collect the subscriber form from a PoP (point of presence): A PoP is a bank or authorised agency registered with PFRDA. Fill out the subscriber form and submit it along with your KYC documents (skip this step if you're already KYC-compliant with that bank).

Make your initial investment. To get started, you need to make a minimum investment of Rs500. This can be a one-time payment or smaller regular contributions (at least Rs250 monthly or Rs1000 annually).

Once your application is processed, the PoP will send you your Permanent Retirement Account Number (PRAN). This unique number acts as your NPS account ID.

You'll also receive a welcome kit containing your password. Use these credentials to access and manage your NPS account online.

Also Read: How to save tax in new tax regime (2024-25)

How to invest in NPS online

Opening an NPS account online can be done in under an hour, especially if your PAN, Aadhaar, and mobile number are linked. Follow these steps:

Visit enps.nsdl.com (new users have to register first).
Fill in the details, and choose an investment option.
Link PAN & Aadhaar (upload documents if needed).
Pay the initial amount (Rs500 minimum).
Verify with OTP received on mobile.
Get your PRAN (account ID) via email/SMS.

Eligibility criteria for investing in NPS

Let's break down the eligibility criteria of investing in NPS:

Any Indian citizen can invest in NPS regardless of their employment status (salaried, self-employed, or unemployed). NRIs can also participate in NPS. However, Overseas Citizens of India (OCIs) are not eligible to invest in NPS.
The minimum age to invest is 18 years old, and the maximum is 70 years.
A Permanent Account Number (PAN) card is mandatory for registration.
You'll also need a bank account linked to your PAN.
NPS is an individual pension account. This means each person has to open and manage their own NPS account. It cannot be opened on behalf of a third party.

Also Read: PPF withdrawal rules: Partial, premature and closure after maturity

Why should you invest in NPS?

The National Pension Scheme (NPS) offers tax benefits for both employees and employers. Here are the NPS taxation benefits:

Employee contributions: By investing in NPS, you can save up to 10 percent of your salary (basic + DA) on taxes under Section 80CCD(1) within the overall limit of Rs1.5 lakh under Section 80CCE.

Self-employed individuals: Under Section 80CCD (1), self-employed individuals can claim a tax deduction of up to 20 percent of their gross income, subject to the Rs1.5 lakh ceiling under Section 80CCE.

Tax benefit for businesses: Under Section 36 (1) (iv) (a), companies can deduct contributions made to their employees' NPS accounts (up to 14 percent of the basic salary) as a business expense.

Also Read: Long term capital gains (LTCG) tax: Rates, calculation, and more

NPS: early withdrawal and exit rules

NPS emphasises long-term saving for retirement. However, there are provisions for early withdrawal and exit under specific circumstances. Here's a breakdown of the key points:

At retirement (superannuation/age 60)
Upon retirement age, a minimum of 60 percent of your accumulated corpus must be used to purchase an annuity that provides you with a monthly pension.
The remaining 40 percent of the corpus is available for withdrawal as a lump sum, which is generally tax-free under Section 10(12A) of the Income Tax Act.
If your entire corpus is less than or equal to Rs5 lakh, you can opt for a 100 percent lump sum withdrawal at retirement.

Premature exit (before Age 60)

Exiting NPS before retirement typically requires using at least 80 percent of one's corpus to purchase a regular income-generating annuity.
The remaining 20 percent can be withdrawn, but it is likely taxable as per your income tax slab.
If your total corpus is less than or equal to Rs2.5 lakh, you have the option to withdraw the entire amount as a lump sum upon premature exit.

Death of subscriber

In the event of the subscriber's death, the entire accumulated pension corpus (100 percent) is paid out to the designated nominee or legal heir.

FAQs

What is the NPS interest rate?

Unlike traditional fixed deposits with guaranteed interest rates, NPS offers market-linked returns. Historically, NPS has provided returns ranging from 9 percent to 12 percent per annum.

Can I have more than one NPS account?

No, opening multiple NPS accounts for the same individual is not allowed. You can only have one active NPS account.