You must have heard of the National Pension Scheme (NPS) – a social security initiative by the Indian government. It is an extremely popular scheme amongst individuals who work in the private sector. It is a great scheme for those who wish to get a head start on their retirement planning.
Some of the attractive features of the NPS are its low-risk nature, tax benefits, low investment threshold, and more. Countless Indians have made the most of their NPS investment by having a sizeable corpus to rely on post-retirement.
NPS: Account Types
There are two NPS account types, Tier-1 and Tier-2. It is mandatory for individuals opening their first NPS account to open a Tier-1 account. An individual is only allowed to hold one Tier-1 account, so if you plan to open another, it would have to be a Tier-2 account, which is voluntary.
Here are some of the NPS scheme benefits you can avail of under each type of NPS account.
NPS Tier-1 Account:
- Lock-in period – individuals can only withdraw up to 60% of their corpus when they turn 60, which is when the investment matures.
- The account holder must invest a minimum of Rs. 1,000 a year.
- The minimum NPS contribution to open an account is Rs. 500.
- Individuals can withdraw up to 25% of the total fund after a three-year waiting period. However, this is only allowed under certain conditions.
- Tier-1 account holders enjoy many tax benefits due to Section 80C and other provisions of the Income Tax Act. Individuals can receive tax deductions on investments up to Rs. 2,00,000. Individuals can also avail themselves of other tax benefits via their NPS Tier-1 account.
- No investment limits.
NPS Tier-2 Account:
- No tax benefits unless you are a government employee.
- Withdrawals are permitted.
- Must invest a minimum amount of at least Rs. 250 once a year.
- Minimum NPS contribution to open account: Rs. 1,000
- No investment limits.
How To Apply?
Individuals can apply for and register an NPS account either offline or online.
Offline: Locate and visit your nearest NPS Points of Presence (PoPs) office or bank to fill out and hand in the application along with your KYC papers. This step will not be necessary if you have already completed the KYC process with your bank. The number and password you receive in your sealed welcome kit will help you operate your account.
Online: Visit enps.nsdl.com to activate your account online. Fill in the required details and link your account to your PAN, Aadhaar, and mobile number. Validating your registration will generate your PRAN (Permanent Retirement Account Number), which will stay with you from then on.
Benefits of the NPS Scheme
Many NPS scheme benefits are in place to attract and incentivise interested investors. Here are some of the advantages of opening and maintaining an NPS account:
- Tax benefits or up to Rs 2 lakh
- Ease of use
- Investments are managed by professional fund managers
- Higher returns than Public Provident Funds
- Compounding interest on investment
- Portfolio diversification
If you do not have an NPS account and plan to open one soon, you can utilise an NPS Calculator to help plan your investment. You can access the NPS Calculator in India for free on the websites of top financial institutions.
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