NPS or National Pension Scheme is a retirement oriented saving vehicle launched by Pension Fund Regulatory and Development Authority (PFRDA) in 2004. Any citizen between the age of 18-60 can open an NPS Account and build a good retirement corpus.
The pooled money from subscribers is invested in various equity and debt securities which generate returns in the long run. The investment portfolio is managed by PFRDA-registered fund managers. Investors can change the fund houses if they think that the performance of the fund is not at par with the market performance or any benchmark performance.
You can withdraw up to 25% of your investment in an NPS Account after three years of opening the NPS Account, although for specific purposes like buying a house, children’s education, wedding etc.
Features of NPS Account
- 40% of the corpus in NPS does not attract any taxes at maturity whereas the remaining 60% is taxable.
- At least 40% of the corpus must be utilised for purchasing an annuity.
- The amount utilised for purchasing annuity is exempt from tax.
- Any amount withdrawn as a lump sum is taxable on withdrawal.
- If you choose to withdraw 40% and purchase an annuity with the remaining 60%, your corpus will be tax-free.
- The pension earned from annuity is taxable as per the slab of the account holder.
- The total tax exemption in NPS was ₹1.5 lakh per year which has been raised to ₹2 lakh per year under Section 80(C) of the IT Act. In terms of tax-savings, NPS is considered as the second-best option after Equity Linked Savings Schemes (ELSS).
Types of NPS Account
There are two types of NPS accounts – Tier 1 account and Tier 2 account.
NPS Tier 1 Account: This is the compulsory NPS account and investments made into it provide tax exemption benefits under Section 80(C). While the usual cumulative 80C benefit is only up to Rs.1.5 lakhs, investment in this type of NPS account provides National Pension System subscribers an additional tax exemption benefit of Rs. 50,000. However, there are significant restrictions on withdrawals from this account.
NPS Tier 2 Account: This is an optional retirement cum investment account available to NPS subscribers who have a Tier 1 NPS account. Investments made into the Tier 2 account do not have any tax exemption benefits. Additionally, investments into this account are allowed only if the tier 1 account is in good standing. Under the existing NPS rules, the NPS Tier 2 Account does not feature any withdrawal restrictions on investments made into this account.
How to Open an NPS Account
An NPS Account can either be opened online or offline. To open the NPS account online, visit the PFRDA Website and follow these steps:
- Click on the ‘Registration’ and select ‘register with Aadhaar’ Option.
- Enter the Aadhaar Number and click on “Generate OTP” option.
- The OTP will be sent to your registered mobile number.
- Enter the OTP along with your personal details, nomination details, and bank details.
- Once the application is successfully submitted, your Permanent Retirement Allotment Number (PRAN) will be allotted.
- Your photograph will be the same as in the ‘Photograph and Signature’ tab.
- Click on the ‘e-signature’ option. Once again an OTP will be generated and sent to your mobile number.
- Enter the OTP to verify your signature and make payment.
How to Open an NPS Account Offline
To open an NPS Account Offline, one can visit the nearest Point of Presence (POPs) registered under PFRDA to get the registration form. POPs are certain banks and financial institutions appointed by PFRDA to provide services to customers under the NPS scheme.
Subscription to NPS Scheme, changing fund manager, and all related services under NPS are provided at these POPs. For subscribing to NPS Scheme, you need to fill out basic details in the application form and provide necessary Know Your Customer (KYC) documents including Aadhar Card, PAN Card, address proof etc.
Download the NPS Account Opening Form from here: National Pension Scheme Registration Form
Benefits of opening an NPS Account with Aadhaar
The process for opening an NPS account was perhaps a bit complicated in the past. Applicants had to request for and then send a duly filled NPS form to the office of the Pension Fund Regulatory and Development Authority (PFRDA). But after the introduction of eNPS, the process has become far easier. Just a few clicks and you are good to go. Here are some of the benefits of opening an NPS Account with Aadhar:
- The NPS form can be downloaded and submitted through PFRDA’s portal of Central Recordkeeping Agency (CRA).
- Applicants providing Aadhaar number and then authenticating it with e-Signature do not need to submit a hard copy
- E-signatures are verified by a One-Time Password (OTP) sent on the Aadhaar registered mobile numbers of applicants. This process saves a lot of time, money, effort, and certainly paperwork from both sides.
- Applicants can take help from a Point of Presence (POP) for any assistance in filling the online NPS form. Almost every bank registered with NPS acts as a POP and is required to help people regarding the form filling and other related enquiries
- All POPs are allowed to charge a minimal fee for providing the E-signature services. However, the charges cannot exceed a maximum of ₹ 5 + GST.
NPS Account Login
You can log into your National Pension System account online through the NSDL website. On the home page, you can navigate to the Login menu at the top right corner of the page and click on the Subscribers – NPS Link if you are an individual NPS subscriber.
Clicking on the Subscribers-NPS Regular link above, you will be redirected to the following NPS login page. On this page, you can use your Permanent Retirement Account Number (PRAN) and password to sign into your NPS account.
Checking NPS Account Statements Online
After you have logged into your NPS account, you can access your NPS Account Statements online that include a complete list of your transactions (Tier 1 and Tier 2 deposits/withdrawals) as well as details of your holdings under the National Pension System. The NPS account statements can be downloaded from the “Transaction Statement” menu which contains links to “Holding Statement” and “Transaction Statement”.
Apart from the option of downloading your NPS account statement you will also receive digital copies of your NPS Tier 1 and Tier 2 account holdings via email. The digital NPS statement of account is sent to your registered email periodically and contains details of all transactions (deposits/withdrawals) for the applicable time period. Physical copies of your NPS Statement of Transaction (SOT) are also printed and dispatched once a year by the CRA to which your NPS accounts are registered.
NPS Account Balance Check
It is easy to check NPS Account Balance online. There are two options available to check your NPS account balance online – log on to the web interface of your NPS account or use the NPS app for Android or iOS. You need to have access to your PRAN and the login password in order to complete the sign in process. Once you login, you can easily check your NPS account balance.
Know more about NPS online registration
How to Close your NPS Account
Closure of the NPS Account also known as exit from the National Pension System is possible in case of three key events i.e. retirement, death or premature exit from the pension scheme. Separate NPS withdrawal forms are available in each case and depending on the unique situation, various supporting documents need to be submitted by the NPS subscriber. The following are the key NPS withdrawal forms:
- Withdrawal form for normal superannuation (retirement of subscriber)/incapacitation
- Withdrawal form and annexure in case of death of subscriber
- Withdrawal form for premature exit from the scheme
Completely filled form(s) along with the required supporting documents need to be submitted to the relevant authority for processing closure of an NPS account.
An alternative process to close the NPS Account is also available to subscribers who have access to the online NPS Account.
In all cases, a claim ID is generated to track the status of the request. Although, one must keep in mind that in most cases, withdrawal of the entire amount deposited in the NPS Tier 1 account is not possible (Tier 2 account deposits can be withdrawn completely). In case of Tier 1 account, apart from the applicable lump sum withdrawal, a portion of the funds need to be mandatorily converted to annuities.
How to Deposit money in NPS Account Online
Online deposit of funds into the NPS account is possible in two ways:
a) Through the NPS website
b) Through the NPS mobile app available for Android and iOS users.
In case of choosing either online NPS account deposit route, contributions to NPS by the subscriber can be made using net banking, debit card or credit card. Either one of the online routes can be used for both Tier 1 and Tier 2 NPS account deposits.
How to Unfreeze NPS Account
Your NPS account may get “frozen” if you have not made the minimum Tier 1 contribution during a specific financial year (currently ₹1000 annually). In such cases, it is possible to unfreeze your NPS account by making a penalty payment of ₹500 (either offline or online) during the current financial year. This penalty payment is in addition to the mandatory ₹1000 minimum NPS Tier 1 payment to be made for the fiscal.
In case of offline contribution for unfreezing your NPS account, you are required to fill out and submit a NCIS (NPS Contribution Instruction Slip) with one of the registered POP-SPs (Point of Presence – Service Providers). A POP-SP is allowed to receive payments from NPS subscribers on behalf of the National Pension System. Key details that need to be filled out in the NCIS include PRAN, details of payment (cheque/DD number). The cheque/DD submitted along with the NCIS will have to be made in favour of “POP <POP Name> Collection Account – NPS Trust” in case of offline payment for unfreezing/reactivation of NPS account.
You can also opt for online re-activation through online payment using net banking/debit card. All you need to do is sign into your online NPS account and deposit the ₹500 penalty to unfreeze your NPS Tier 1 and Tier 2 accounts online. However, do ensure that you also make the minimum NPS Tier 1 account contribution of ₹1000 for the current fiscal in order to ensure that your NPS account does not freeze again after the start of the next fiscal.