NPS contributions can be made either online or offline by individuals. Contributions made into the National Pension System can not only help subscribers secure their financial future but can also help decrease their income tax burden. In the following sections we will discuss some key information regarding contribution to this nation-wide pension scheme.
How to Make NPS Contribution
The primary requirement for making a contribution in the National Pension System is subscribing to it and being allocated a permanent retirement account number (PRAN). While current government employees are automatically enrolled into the scheme and provided a PRAN, private sector employees as well as self-employed individuals are required to sign up voluntarily under the All-Citizen’s model of the pension system. Once you are registered with this pension scheme, you will get a unique PRAN (Permanent Retirement Account Number) and can make pension fund contributions either via the online or the offline route.
Online NPS Contribution
To make a NPS contribution online, you need to visit the NPS Official Website. You can then click on the contribution tab to get directed to the Subscriber Services page.
On the Subscriber Services page, you can input your PRAN (permanent retirement account number), date of birth and Capcha code in order to make an online contribution.
In case you have not signed up for your online NPS account yet, know the steps for NPS Log In and Registration
Minimum and Maximum NPS Tier 1 Contribution
The minimum Tier 1 NPS contribution required to keep your account active is Rs. 1,000 per year. You can contribute at any time in the financial year and there is currently no limit on the number of contributions you make during a fiscal.
Under existing NPS rules, there is no maximum contribution limit for a NPS (National Pension System) Tier 1 account. However, do keep in mind that the maximum Tier 1 account tax benefit is limited to Rs. 2 lakh in a fiscal under Section 80CCD (Rs. 1.5 lakh for section 80C plus an additional Rs. 50,000 annually for NPS).
Minimum and Maximum NPS Tier 2 Contribution
There is no minimum amount specified for NPS contribution on yearly basis for Tier 2 account and investments made into it are optional. Moreover, under existing National Pension System rules, there is no limit on the amount that you can contribute into a Tier 2 account or the number of times contributions can be made during a fiscal. However, you should keep in mind that there are no tax benefits for any NPS contribution on yearly basis that you make into this account. Indexation benefit can be claimed when redeeming long term investments made into Tier 2 account.
NPS Contribution for NRIs
Under current regulations provided by the Ministry of External Affairs, NRIs (Non-Resident Indians) have to contribute at least Rs 500 to open an NPS Tier 1 account. Additionally, they have to contribute at least Rs 6,000 per annum in order to keep their Tier 1 NPS account in good standing. While there is no maximum limit on the number of times an NRI can contribute in the Tier 1 account, the minimum amount for each of these contributions is Rs. 500.
The existing rules also specify that NPS contributions by an NRI can only be made through a NRE (Non Resident) Rupee Account or a NRO (Non-Resident Ordinary) Rupee Account. Additionally, NPS contributions are allowed only for NRIs in the age group of 18 years to 60 years. Under existing rules, PIO (person of Indian origin) and OCI (overseas citizen of India) are not allowed to invest in NPS.
NPS Contribution by Employer
Under existing rules of the scheme, government sector employees are automatically entitled to contributions into their pension account by the government. NPS contribution by employer is currently less common among private sector employees but definitely allowed. What’s more, you are entitled to tax benefits on employer contributions into NPS irrespective of whether you are a government employee or a private sector employee.
Currently the maximum employer contribution to NPS which is tax deductible is limited to 10% of your annual basic salary. Thus if your annual basic salary is Rs. 5 lakh, employer NPS contribution of up to Rs. 50,000 during the fiscal will be tax deductible. You should however keep in mind that this tax benefit in lieu of NPS contribution by employer will be considered part of the total annual tax deduction benefit of Rs. 2 lakh currently available under the scheme.
NPS Online Contribution Payment Gateway Charges
There are certain payment gateway charges that are applicable when making online NPS contributions online. These charges are as follows:
- In case of online NPS contributions via Internet Banking, the charges are Rs.0.60 per transaction (excluding GST). This settlement occurs through BillDesk and it is the same charge irrespective of the contribution amount under NPS.
- If you are planning your online NPS contribution by debit card, the applicable gateway charges are 0.80% of the transaction amount (excluding GST).
- For online contributions using Credit Card, the transaction charges are 0.90% of the transaction amount (excluding GST).
Considering these charges, it is obvious that if you want to keep your NPS contribution charges low, Internet Banking is by far the best option available to you.
At present, the online portal of National Pension System allows contributions through two key gateways – SBIePay and BillDesk.
Additional NPS Online Contribution Charges
In addition to the payment gateway charges, online NPS contributions (i.e. contributions made through enps.nsdl.com or enps.karvy.com) also feature some other key charges. A contribution charge equal to 0.10% of the contribution amount is levied on all NPS contribution with Rs. 10 as the minimum charge and Rs 10,000 as the maximum charge per contribution. This is charged over and above the payment gateway charges for using a debit/credit card to make your online NPS contribution.
The corresponding charge for payment through net-banking is much lower at just 60 paisa per contribution which makes net banking a more cost efficient NPS online contribution option as compared to card payment. You also have to option of using the SBI payment gateway if your bank is affiliated with SBI e-payment (this includes most nationalised banks and some private banks). Alternatively, customers of leading private banks like ICICI, HDFC, YES, Axis etc. can also use BillDesk as their payment gateway to make online NPS contributions easily.
Offline NPS Contribution Charges
In its current form, the National Pension System also supports offline contributions made by cash/demand draft/cheque at registered POP-SP (Point of Presence – Service Provider). For offline contributions through a POP-SP, the charge is 0.25% of the amount contributed with a minimum charge of Rs. 20 and a maximum charge of Rs 25,000 per transaction. For example, if you contribute Rs. 50,000 to this scheme through a POP-SP, you will be charged Rs. 125 for the transaction.
NPS Contribution Form
In case you are planning to make a contribution in the national pension system by cash, draft or cheque, you also need to submit a NPS contribution form also known as a NPS Contribution Instruction Slip (NCIS). Separate NPS contribution slips may be used for Tier 1 and Tier 2 account investments made by a subscriber of the scheme. Details that need to be filled out in the NPS contribution form prior to submission include:
- Your name, PRAN (Permanent Retirement Account Number) and details of the amount as well as the DD/cheque number that you are providing.
- The contribution amount for Tier 1 or Tier 2 account
- Whether you are a government employee with date of joining before 1st January 2004.
In case you are a government employee who joined after this date, you can only make Tier 2 account contributions using the NPS contribution slip. In case of government employees who joined before 1st January 2014, offline contributions can be made into both the Tier 1 and Tier accounts of the National Pension System. Another document that you may need to attach with the NCIS is a copy of your PAN. This is required if your cash contribution exceeds Rs. 50,000.
Age Limit for NPS Contributions
You can start contributing into this scheme as early as 18 years of age to the age of 70 years. The NPS account matures at the age of 60 but you can extend it to the age of 70 and keep contributing to it even after attaining the age of 60 years.
Tax Deduction on Contributions
You get tax deduction benefits for contributions into NPS Tier 1 account. There are no tax deductions for contributions to NPS Tier 2 accounts. Tier 1 NPS contribution on yearly basis of up to Rs 1.5 lakh is tax deductible under Section 80CCD (1) and Section 80CCD(2). An additional annual contribution of Rs. 50,000 is also tax deductible under Section 80CCD (1B).
Thus the total tax deduction that a salaried subscriber of this scheme can claim through National Pension System contributions is Rs. 2 lakh annually. You can also get this deduction currently if you are self-employed or work in the unorganised sector. In this case, the limit is 20% of your gross income up to Rs. 1.5 lakh u/s 80CCD (1) and (2) with an additional Rs. 50,000 u/s 80CCD(1B).
Example of How Tax Deduction works with NPS
Let’s assume your annual gross income is Rs 6 lakh and you contribute Rs 1 lakh to NPS Tier 1 during the fiscal. The entire contribution of Rs 1 lakh is tax deductible. Your net taxable income will now be Rs. 5 lakh.
But you could easily contribute an additional Rs. 1 lakh into NPS to claim the complete Section 80 CCD (1), (2) and (1B) benefit offered by this pension scheme. In such a situation, your net taxable income will be Rs. 3 lakh only (5 lakh – 2 lakh). In case you are in the maximum tax bracket of 30%, your tax burden can be lowered by up to Rs. 60,000 (before surcharge/cess) just by investing in this pension fund.