NPS (NATIONAL PENSION SCHEME) IS A GOVERNMENT-BACKED PENSION SCHEME IN INDIA, INTRODUCED TO PROVIDE RETIREMENT BENEFITS TO INDIVIDUALS FROM BOTH THE ORGANIZED AND UNORGANIZED SECTORS. IT OFFERS A FLEXIBLE AND VOLUNTARY RETIREMENT SAVINGS OPTION THAT CAN HELP SECURE FINANCIAL INDEPENDENCE IN OLD AGE.
NPS IS REGULATED BY PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY (PFRDA). NPS IS AN ANITIATIVE UNDERTAKEN BY THE GOVERNMENT OF INDIA WITH THE AIM OF PROVIDING RETIREMENT BENEFITS TO ALL THE CITIZENS OF INDIA. NPS SEEKS TO INCULCATE THE HABITS OF SAVING FOR RETIREMENT AMONGST THE CITIZENS.
OBJECTIVES:
- TO PROVIDE OLD AGE INCOME.
- OVER THE LONG TERM REASONABLE MARKET BASED RETURNS.
- EXTENDING OLD AGE SECURITY TO ALL CITIZENS.
PRAN NO:-
PRAN STANDS FOR PERMANENT RETIREMENTS ACCOUNT NUMBER AND IT’S A 12 DIGIT UNIQUE IDENTIFIER FOR PEOPLE ENROLLED IN THE NATIONAL PENSION SCHEME (NPS). PRAN IS USED FOR VARIETY OF PURPOSE INCLUDING MANAGING RETIREMENT ACCOUNTS, CONTRIBUTING TO SAVING TRACKING PENSION FUNDS, ACCESSING NPS BENEFITS AND LOGGING IN TO THE ENPS-NSDL WEBSITE.
APPLY FOR PRAN NO:-
ONLINE:-
YOU CAN REGISTER THROUGH THE ENPS PORTAL.
OFFLINE:-
SUBMIT THE REQUIRE FORMS AND DOCUMENTS TO POINT OF PRESENCE.
ELIGIBILITY FOR APPLYING PRAN NO:-
- BE AN INDIAN CITIZEN.
- AGE BETWEEN 18 TO 70 YEARS.
- HAVE VALID PROOF OF IDENTITY, ADDRESS AND DATE OF BIRTH.
- HAVE A BANK ACCOUNT WITH AN IMPAIRED BANK FOR KYC VERIFICATION.
- HAVE A PAN CARD AND AADHAR CARD.
- PROVIDE A SCANNED COPY OF YOUR CANCELLED CHEQUE, SIGNATURE AND PHOTOGRAPH.
ONCE THE SUBSCRIBER MAKES AN APPLICATION FOR PRAN, THE POP ACKNOWLEDGES THAT THE FORM IS ADMITTED BY ISSUING A 17 DIGIT UNIQUE RECEIPT NO. AFTER REGISTERING, YOU WILL RECEIVE YOUR PRAN ON YOUR EMAIL AND MOBILE NO (SMS). YOUR CARD WILL BE SENT TO THE ADDRESS YOU PROVIDED WITHIN 20 DAYS.
YOU WILL BE ALLOTTED A UNIQUE PERMANENT RETIREMENT ACCOUNT NUMBER (PRAN). THIS UNIQUE ACCOUNT NUMBER WILL REMAIN THE SAME FOR THE REST OF YOUR LIFE. YOU WILL BE ABLE TO USE THIS ACCOUNT AND THIS UNIQUE PRAN FROM ANY LOCATION IN INDIA.
PRAN WILL PROVIDE ACCESS TO TWO PERSONAL ACCOUNTS:-
- TIER-I PENSION ACCOUNT
YOU WILL CONTRIBUTE YOUR SAVINGS FOR RETIREMENT INTO THIS NON-WITHDRAWABLE ACCOUNT.
- TIER-II SAVINGS ACCOUNT
THIS IS SIMPLY A VOLUNTARY SAVINGS FACILITY. YOU WILL BE FREE TO WITHDRAW YOUR SAVINGS FROM THIS ACCOUNT WHENEVER YOU WISH.
SOME ABREVIATIONS:-
POP: POINT OF PRESENCE
CRA: CENTRAL RECORDKEEPING AGENCY
PFMs: PENSION FUNDS (PFS) / PENSION FUND MANAGERS
ASPs: ANNUITY SERVICE PROVIDERS
PFRDA: PENSION FUND REGULATORY AND DEVELOPMENT AUTHORITY
NPS TIER I ACCOUNT:-
THE NPS TIER I ACCOUNT IS THE PRIMARY ACCOUNT FOR RETIREMENT SAVINGS, DESIGNED FOR INDIVIDUALS WHO ARE LOOKING FOR A STRUCTURED PENSION PLAN. IT OFFERS TAX BENEFITS AND IS SUBJECT TO CERTAIN RESTRICTIONS ON WITHDRAWALS.
KEY FEATURES OF NPS TIER I ACCOUNT:-
RETIREMENT-ORIENTED: THE TIER I ACCOUNT IS INTENDED SOLELY FOR RETIREMENT PURPOSES, AND IT HELPS ACCUMULATE A PENSION CORPUS OVER THE LONG TERM.
TAX BENEFITS: CONTRIBUTIONS TO THE TIER I ACCOUNT ARE ELIGIBLE FOR TAX BENEFITS UNDER SECTION 80C OF THE INCOME TAX ACT (UP TO ₹1.5 LAKH). ADDITIONALLY, AN ADDITIONAL DEDUCTION OF ₹50,000 CAN BE CLAIMED UNDER SECTION 80CCD (1B) FOR CONTRIBUTIONS MADE TO TIER I.
LOCK-IN PERIOD: THE TIER I ACCOUNT HAS A LOCK-IN PERIOD UNTIL THE SUBSCRIBER REACHES THE AGE OF 60. WITHDRAWAL IS ALLOWED ONLY UNDER SPECIFIC CIRCUMSTANCES BEFORE THIS AGE (E.G., PERMANENT DISABILITY, DEATH).
MINIMUM CONTRIBUTION: A MINIMUM CONTRIBUTION OF ₹500 PER YEAR IS REQUIRED TO KEEP THE ACCOUNT ACTIVE.
COMPULSORY ANNUITY: AT RETIREMENT (AGE 60), THE SUBSCRIBER MUST USE AT LEAST 40% OF THE ACCUMULATED CORPUS TO PURCHASE AN ANNUITY, ENSURING A STEADY POST-RETIREMENT INCOME.
PARTIAL WITHDRAWALS: LIMITED WITHDRAWALS CAN BE MADE FOR SPECIFIC REASONS, SUCH AS FUNDING CHILDREN’S EDUCATION OR A MEDICAL EMERGENCY, BUT ONLY AFTER THREE YEARS OF ACCOUNT CREATION.
TAXATION ON WITHDRAWAL: THE ENTIRE AMOUNT WITHDRAWN FROM THE TIER I ACCOUNT AT RETIREMENT IS SUBJECT TO TAX, THOUGH THE ANNUITY PURCHASED IS SUBJECT TO TAX AS INCOME.
CONTRIBUTIONS FROM EMPLOYERS: EMPLOYEES CAN RECEIVE CONTRIBUTIONS FROM THEIR EMPLOYERS INTO THEIR TIER I ACCOUNTS (IN ADDITION TO THEIR OWN CONTRIBUTIONS).
BENEFITS OF NPS TIER I ACCOUNT:-
TAX-FREE GROWTH: THE CONTRIBUTIONS GROW TAX-FREE, WITH TAX DEFERRAL UNTIL WITHDRAWAL.
RETIREMENT SECURITY: ENSURES A PENSION POST-RETIREMENT THROUGH ANNUITY PURCHASES.
GOVERNMENT-BACKED: SINCE IT IS A GOVERNMENT-BACKED SCHEME, IT OFFERS SAFETY AND SECURITY FOR LONG-TERM RETIREMENT PLANNING.
FLEXIBILITY IN INVESTMENTS: SUBSCRIBERS CAN CHOOSE BETWEEN ACTIVE AND AUTO CHOICE FOR ASSET ALLOCATION.
NPS TIER II ACCOUNT:-
THE NPS TIER II ACCOUNT IS AN OPTIONAL ACCOUNT DESIGNED FOR INVESTORS WHO WISH TO HAVE MORE FLEXIBILITY IN TERMS OF WITHDRAWALS AND INVESTMENT ALLOCATION. UNLIKE THE TIER I ACCOUNT, IT DOES NOT OFFER THE SAME TAX BENEFITS.
KEY FEATURES OF NPS TIER II ACCOUNT:-
VOLUNTARY ACCOUNT: TIER II IS A VOLUNTARY ACCOUNT, MEANING INVESTORS ARE NOT REQUIRED TO OPEN THIS ACCOUNT. IT PROVIDES FLEXIBILITY IN TERMS OF ACCESS TO THE FUNDS.
WITHDRAWAL FLEXIBILITY: THERE ARE NO RESTRICTIONS ON WITHDRAWING FUNDS FROM A TIER II ACCOUNT, ALLOWING INVESTORS TO ACCESS THEIR MONEY AT ANY TIME.
NO TAX BENEFITS: CONTRIBUTIONS TO THE TIER II ACCOUNT ARE NOT ELIGIBLE FOR TAX DEDUCTIONS. HOWEVER, INVESTORS DO NOT NEED TO LOCK IN THEIR FUNDS AS IN THE TIER I ACCOUNT, AND THEY CAN WITHDRAW AS NEEDED.
MINIMUM CONTRIBUTION: THE MINIMUM CONTRIBUTION REQUIRED TO OPEN A TIER II ACCOUNT IS ₹1,000, AND THE MINIMUM CONTRIBUTION PER YEAR IS ₹250.
NO ANNUITY REQUIREMENT: THE TIER II ACCOUNT DOES NOT REQUIRE THE SUBSCRIBER TO USE THE FUNDS TO PURCHASE AN ANNUITY AFTER RETIREMENT. WITHDRAWALS CAN BE MADE FREELY AT ANY TIME.
INVESTMENT OPTIONS: TIER II ACCOUNT HOLDERS CAN CHOOSE FROM THE SAME ASSET CLASSES (EQUITY, CORPORATE BONDS, AND GOVERNMENT SECURITIES) AS TIER I, BASED ON THEIR RISK PREFERENCE.
TRANSFER OF FUNDS: YOU CAN TRANSFER FUNDS BETWEEN TIER I AND TIER II ACCOUNTS. HOWEVER, THERE ARE NO TAX BENEFITS ASSOCIATED WITH THESE TRANSFERS.
BENEFITS OF NPS TIER II ACCOUNT:-
LIQUIDITY: INVESTORS CAN ACCESS FUNDS AT ANY TIME WITHOUT PENALTIES, MAKING IT A GOOD OPTION FOR THOSE WHO NEED SHORT-TERM ACCESS TO FUNDS.
HIGHER RETURN POTENTIAL: LIKE THE TIER I ACCOUNT, THE TIER II ACCOUNT ALLOWS FOR INVESTMENTS IN VARIOUS ASSET CLASSES, WITH THE POTENTIAL FOR HIGHER RETURNS OVER TIME.
OPTIONAL INVESTMENT: IT GIVES INDIVIDUALS THE FLEXIBILITY TO INVEST IN NPS WITHOUT THE COMPULSION TO RETIRE AT THE AGE OF 60, UNLIKE THE TIER I ACCOUNT.
DIVERSIFICATION: INVESTORS CAN DIVERSIFY THEIR PORTFOLIO BY ADDING A TIER II ACCOUNT, INCREASING THEIR OVERALL INVESTMENT OPTIONS.
NPS TIER I VS TIER II – KEY DIFFERENCES
| FEATURE | NPS TIER I | NPS TIER II |
| PURPOSE | RETIREMENT SAVINGS ACCOUNT | VOLUNTARY, FLEXIBLE SAVINGS ACCOUNT |
| TAX BENEFITS | TAX BENEFITS UNDER SECTION 80C AND SECTION 80CCD(1B) | NO TAX BENEFITS |
| WITHDRAWAL RESTRICTION | WITHDRAWAL ALLOWED ONLY AT RETIREMENT (WITH EXCEPTIONS) | FUNDS CAN BE WITHDRAWN AT ANY TIME |
| MINIMUM CONTRIBUTION | ₹500 PER YEAR | ₹1,000 TO OPEN, ₹250 PER YEAR |
| ANNUITY REQUIREMENT | 40% OF CORPUS MUST BE USED FOR ANNUITY AT RETIREMENT | NO ANNUITY REQUIREMENT |
| TAX ON WITHDRAWAL | TAX ON LUMP SUM WITHDRAWAL AND ANNUITY | NO TAX BENEFITS ON CONTRIBUTION; NO ANNUITY REQUIRED |
| VOLUNTARY | COMPULSORY FOR RETIREMENT PLANNING | OPTIONAL, FLEXIBLE SAVINGS |
HOW TO OPEN NPS TIER I AND TIER II ACCOUNTS?
ONLINE REGISTRATION: YOU CAN OPEN AN NPS ACCOUNT ONLINE THROUGH THE OFFICIAL NPS PORTAL, OR BY VISITING A POINT OF PRESENCE (POP) SUCH AS BANKS OR FINANCIAL INSTITUTIONS AUTHORIZED BY THE PFRDA.
REQUIRED DOCUMENTS: YOU WILL NEED BASIC KYC DOCUMENTS LIKE AADHAAR, PAN, AND BANK DETAILS TO COMPLETE THE REGISTRATION PROCESS.
PERMANENT ACCOUNT NUMBER (PAN): A PAN CARD IS MANDATORY TO OPEN AN NPS TIER I ACCOUNT.
LINKING WITH BANK ACCOUNT: YOU WILL NEED TO LINK YOUR NPS ACCOUNT WITH YOUR BANK ACCOUNT FOR SEAMLESS CONTRIBUTION TRANSFERS.
KEY CONSIDERATIONS BEFORE CHOOSING BETWEEN NPS TIER I AND TIER II
LONG-TERM VS SHORT-TERM GOALS: IF YOU ARE PLANNING FOR LONG-TERM RETIREMENT SAVINGS, THE TIER I ACCOUNT IS MORE SUITABLE DUE TO ITS TAX ADVANTAGES AND PENSION PLAN FOCUS. HOWEVER, IF YOU NEED MORE FLEXIBILITY IN ACCESSING FUNDS, TIER II MAY BE A BETTER OPTION.
TAX PLANNING: TIER I OFFERS TAX BENEFITS, SO IF TAX-SAVING IS A PRIORITY, IT IS A GOOD OPTION FOR INDIVIDUALS TO REDUCE THEIR TAXABLE INCOME.
PENSION SECURITY: IF YOU ARE FOCUSED ON SECURING A POST-RETIREMENT PENSION, THEN THE TIER I ACCOUNT IS MANDATORY, AS IT HELPS BUILD A RETIREMENT CORPUS AND MANDATES THE PURCHASE OF AN ANNUITY AT THE TIME OF WITHDRAWAL.
CONCLUSION:-
BOTH NPS TIER I AND TIER II ACCOUNTS OFFER DISTINCT ADVANTAGES. WHILE TIER I IS DESIGNED FOR THOSE FOCUSING ON LONG-TERM RETIREMENT SAVINGS WITH TAX BENEFITS AND ANNUITY OPTIONS, TIER II PROVIDES GREATER FLEXIBILITY FOR THOSE SEEKING EASIER ACCESS TO THEIR FUNDS. UNDERSTANDING YOUR INVESTMENT GOALS AND RETIREMENT NEEDS WILL HELP YOU CHOOSE THE RIGHT NPS ACCOUNT TYPE.
GETTING YOUR MONEY OUT
| SL NO | VESTING CRITERA | BENEFITS |
| 1. | AT ANY POINT IN TIME BEFORE 60 YEARS OF AGE | YOU WOULD BE REQUIRED TO INVEST AT LEAST 80% OF THE PENSION WEALTH TO PURCHASE A LIFE ANNUITY FROM ANY IRDA – REGULATED LIFE INSURANCE COMPANY. REST 20% OF THE PENSION WEALTH MAY BE WITHDRAWN AS LUMP SUM. |
| 2. | ON ATTAINING THE AGE OF 60 YEARS AND UPTO 70 YEARS OF AGE | AT EXIT YOU WOULD BE REQUIRED TO INVEST MINIMUM 40 PERCENT OF YOUR ACCUMULATED SAVINGS (PENSION WEALTH) TO PURCHASE A LIFE ANNUITY FROM ANY IRDA-REGULATED LIFE INSURANCE COMPANY. YOU MAY CHOOSE TO PURCHASE AN ANNUITY FOR AN AMOUNT GREATER THAN 40%. THE REMAINING PENSION WEALTH CAN EITHER BE WITHDRAWN IN A LUMP SUM ON ATTAINING THE AGE OF 60 OR IN A PHASED MANNER, BETWEEN AGE 60 AND 70, AT THE OPTION OF THE SUBSCRIBER. |
| 3. | DEATH DUE TO ANY CAUSE | IN SUCH AN UNFORTUNATE EVENT, OPTION WILL BE AVAILABLE TO THE NOMINEE TO RECEIVE 100% OF THE NPS PENSION WEALTH IN LUMP SUM. |
TAX BENEFITS:-
EMPLOYEES CONTRIBUTING TO NPS ARE ELIGIBLE FOR FOLLOWING TAX BENEFITS ON THEIR OWN CONTRIBUTION: TAX DEDUCTION UP TO 10% OF SALARY (BASIC + DA) UNDER SECTION 80 CCD (1) WITHIN THE CEILING OF RS 1.50 LAKH UNDER SEC 80 CCE.
BENEFITS OF NPS
TAX BENEFITS:-
CONTRIBUTIONS TO NPS ARE ELIGIBLE FOR TAX DEDUCTIONS UNDER SECTION 80C AND SECTION 80CCD.
PENSION AFTER RETIREMENT:-
NPS ENSURES A REGULAR INCOME STREAM POST-RETIREMENT BY USING ANNUITY SCHEMES.
FLEXIBLE CONTRIBUTIONS:-
INDIVIDUALS CAN CHOOSE THEIR CONTRIBUTION AMOUNTS AND FREQUENCY BASED ON THEIR FINANCIAL CAPACITY.
PORTABLE ACROSS JOBS:-
NPS IS PORTABLE, MEANING SUBSCRIBERS CAN CONTINUE THEIR NPS ACCOUNT EVEN IF THEY CHANGE EMPLOYERS.
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