National Pension Scheme (NPS) - Explained

Most of us rely on monthly salaries for our economic sustenance, but this is only applicable till we are formally employed. As soon as we retire this flow of income stops and we have to rely on past savings, investments and rental income. However, each one of us may not have had the chance to adequately prepare for our golden years. This is where NPS or the National Pension Scheme comes into play. It's a scheme promoted by the Government of India for ensuring that each citizen of India, between the ages of 18 to 60 years old is prepared for his/her retirement. The scheme was launched in 2004, as a mandatory scheme for Central Government employees, and in 2009, it was made open for all Citizens of India.

Eligibility

NPS can be availed by all Indian citizens, including NRIs, who are between the age of 18-60 years at the time of application. Applicants are also required to comply with applicable KYC rules. In fact, NPS regulations clearly define those who aren’t eligible: Individuals already having an NPS account, bankrupt individuals and those who are not mentally sound.

Working of NPS

With an interest rate varying between 12%-14%, NPS acts as a source of money for the government and hence, it is invested in a very broad range of options. For availing NPS, a PRAN (Permanent Retirement Account Number) is generated, at the time of filling up the application.

Any individual can open two accounts, named Tier I and Tier II. Tier I cannot be used for withdrawing money unless it matures, i.e. you reach the age of 60. However, Tier II can be used for withdrawing money as per requirement. The key here is that Tier I is mandatory for having a Tier II account.

Advantages

Tax benefits:

• Under Section 80C, deduction of Rs 1.5 lakhs.

• Under Section 80CCD, additional deduction of Rs. 50,000.

• Under Section 80CCD(2), deduction up to 10% of salary (Basic + DA) against employer contribution.

Non-Tax Benefits:

• Provides an option to switch between investment funds

• Online access makes it easily operable from anywhere

• Since PFRDA (Pension Fund Regulatory & Development Authority) operates NPS, its makes it a very secure investment option.

Opening NPS account

For opening an NPS account, registration for PRAN is required. PRAN is a unique 12 digit number that is issued to individuals subscribing to NPS.

Documents required for PRAN:

• PAN card

• If PAN isn't available, then the Aadhaar card is required

• Bank Account details

• Address proof

• Scanned signature

• Photograph

Online process for NPS:

• Click here for online registration of NPS

• Click on new registration and choose Individual Subscriber

• Select citizenship and choose between PAN and Aadhaar. (If selected PAN, bank account details will be needed)

• Fill the details

• Select NPS account type

• Fill in the personal details after clicking continue

• Fill in the contact details, as mentioned on address proof

• Enter bank and nomination details

• Upload signature and photograph

• Once payment is complete, PRAN will be allotted

• Once completed, print out the form, paste photograph, sign it and send on the below address within 90 days:

Central Recordkeeping Agency (eNPS), NSDL e-Governance Infrastructure Limited, 1st Floor, Times Tower, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai, 400013 - INDIA

• A PRAN card will be sent to you at the address that you provided as address proof

NPS is a highly prudent investment option, especially for salaried individuals. It allows you to save tax, plan for retirement and offers good returns. So when are you opening your NPS account?