National Pension System Account (NPS) - Tax Benefits - AU Small Finance Bank
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National Pension Scheme (NPS)

About National Pension System

    National Pension Scheme (NPS) is a voluntary retirement savings scheme that helps you stay secure in your old age. The scheme has been designed to enable systematic savings during the subscriber's working life.
    The scheme is available for all citizens of India including NRIs (self-employed as well as salaried individuals).
    AU Small Finance Bank Ltd has been appointed by Pension Fund Regulatory and Development Authority (PFRDA) as POP (Point of Presence) to sell and market NPS. You can apply online for NPS and complete the application process from the comfort of your home.
     

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Features: - Why should you invest In NPS?

An NPS account offers a number of advantages as compared to other pension products. Below are few features which make NPS different from others:

  • Low cost product
  • Easily portable
  • Choice of funds and scheme preferences
  • Flexible contribution and withdrawals
  • Regulated by PFRDA, a regulator set up through an act of Parliament Exclusive tax benefits over and above 80C limit.
 

Types of NPS Account

  1. Tier I NPS account - This is mandatory to open in order to join NPS. Withdrawal from this account is conditional and restricted.
  2. Tier II NPS account - This is optional for subscriber. Withdrawal from this account is permitted as per the requirement of the subscriber.
 

Operating NPS Accounts

Tier I NPS Account
  1. Minimum contribution of Rs 500 at the time of account opening
  2. Minimum contribution of Rs 1,000 per annum
  3. Minimum contribution of Rs 500 at any time
  4. Minimum number of contributions – one per annum
Tier II NPS Account
  1. Minimum contribution of Rs 1,000 at the time of account opening
  2. Minimum contribution of Rs 500 at any time
 

Investment in Funds

There are four funds under NPS - Equities (E), Corporate Bonds (C), Government Securities (G) and Alternate Investment Funds (A). 
There are two investment choices available to the subscriber
Active Choice - Depending on the risk appetite of the subscriber, he/ she can design his/ her portfolio by allocating funds across any of the four asset classes. Under active choice, investment towards Equities and Alternate Investment Fund is capped at 75% and 5% of the total contribution respectively. However, if any subscriber wants to give 100% of contribution towards Corporate Bonds or Government Securities that is allowed on Auto Choice basis. In this approach, the pension fund will be invested in the three asset classes (E, C and G) in the defined proportions based on the age of the subscriber as per the chosen Life Cycle Fund e.g. for subscribers in younger age group, higher exposure to Equities would be available and as the age nears the retirement exposure to Government securities would be increased. Auto choice further offers the employee the choice between the below lifecycle funds as per his/her risk appetite
  1. LC 75 - Aggressive life Cycle Fund- Maximum Equity exposure is 75% up to the age of 35
  2. LC 50 - Moderate life Cycle Fund- Maximum Equity exposure is 50% up to the age of 35
  3. LC 25 - Conservative life Cycle Fund- Maximum Equity exposure is 25% up to the age of 35
 

Investment Pattern Under LC 75

Investment Pattern chart for LC - 75 Aggressive and life Cycle Fund is stated below:

Age of Subscriber E C G
< = 35 years 75% 10% 15%
36 71% 11% 18%
37 67% 12% 21%
38 63% 13% 24%
39 59% 14% 27%
40 55% 15% 30%
41 51% 16% 33%
42 47% 17% 36%
43 43% 18% 39%
44 39% 19% 42%
45 35% 20% 45%
46 32% 20% 48%
47 29% 20% 51%
48 26% 20% 54%
49 23% 20% 57%
50 20% 20% 60%
51 19% 18% 63%
52 18% 16% 66%
53 17% 14% 69%
54 16% 12% 72%
55 years 15% 10% 75%
 

Investment Pattern Chart for LC -50 Moderate Life Cycle Fund Is Stated Below:

Age of Subscriber

E

C

G

< = 35 years

50%

30%

20%

36

48%

29%

23%

37

46%

28%

26%

38

44%

27%

29%

39

42%

26%

32%

40

40%

25%

35%

41

38%

24%

38%

 
 

Investment Pattern Chart for LC -25 Conservative Life Cycle Fund is Stated Below:

Age of Subscriber

E

C

G

< = 35 years

25%

45%

30%

36

24%

43%

33%

37

23%

41%

36%

38

22%

39%

39%

39

21%

37%

42%

40

20%

35%

45%

41

19%

33%

48%

42

18%

31%

51%

43

17%

29%

54%

44

16%

27%

57%

45

15%

25%

60%

46

14%

23%

63%

47

13%

21%

66%

48

12%

19%

69%

49

11%

17%

72%

50

10%

15%

75%

51

9%

13%

78%

52

8%

11%

81%

53

7%

9%

84%

54

6%

7%

87%

55

5%

5%

90%

 
 

Tax Benefits under Investment in NPS

NPS Account Tax Benefit
Tier I Self - Employed Individuals:
  1. Investment up to 20% of Gross Annual Income is deductible from taxable income u/s 80CCD (1) of Income Tax Act, 1961 subject to 1.5 lakhs limit of section 80C
  2. Additionally, investment up to Rs.50,000 is deductible from taxable income u/s 80CCD (1B) of Income Tax Act, 1961

 

Salaried Individuals:

  1. Investment up to 10% of Salary (Basic + Dearness Allowance) is deductible from taxable income u/s 80CCD (1) of Income Tax Act, 1961 subject to 1.5 lakh limit of section 80C
  2. Additionally, investment up to Rs 50,000 is deductible from taxable income u/s 80CCD (1B) of Income Tax Act, 1961
Tier II There is no tax benefit on investment towards Tier II NPS Account
 

Withdrawal From NPS Account

Partial withdrawal is allowed after three years from the date of Tier I account opening. Subscriber can withdraw up to 25% of his own contributed amount (and not the Corpus) from Tier I Account. Partial withdrawal is allowed only for specific emergencies like child’s marriage, higher education, buying home, treatment of critical illness etc
 

Exit From NPS Account

Subscriber can close his / her NPS account after 10 years of account opening or attaining the age 60 years whichever comes first
Pre- Mature Exit: Closure of NPS account before attaining the age 60 years
  1. Up to 20% of corpus can be withdrawn in lump sum
  2. Balance corpus mandatorily to be invested in annuity
  3. If the total corpus is less than or equal to Rs 1 lakh, there is no mandate to invest in to annuity
Exit on MaturityClosure of NPS account on attainment of 60 years
  1. Up to 60% of corpus can be withdrawn in lump sum
  2. Balance corpus mandatorily to be invested in Annuity
  3. If the total corpus is less than or equal to Rs 2 lakh, there is no mandate to invest in to annuity
 

Tax Treatment At The Time Of Exit From NPS Tier I Account:

Tax Treatment on Lumpsum corpus withdrawal ‚Äč

  • Partial Withdrawal: Corpus withdrawn is tax exempt
  • Pre-Mature Exit: Corpus withdrawn in lump sum is tax exempt
  • Exit on Maturity: 40% of Corpus withdrawn in lump sum is tax exempt. subscriber can take out balance 20% of Corpus by paying tax (if falling into tax bracket) or invest in Annuity

 

The Union Cabinet in its Meeting on 6th December, 2018 has enhanced the Tax exemption limit for lump sum withdrawal  60% from 40% . With this, the entire withdrawal will now be exempt from income tax. This is expected to happen effective 1st April 2019 with appropriate change in tax rule.

  • Tax treatment on Annuity Amount invested in Annuity is tax exempt Pension received out of investment in annuity is treated as Income and will be taxed appropriately, if subscriber is falling into any tax bracket
 

Investment in Annuity

On retirement / exit from NPS before retirement, Subscriber needs to select an Annuity Service Provider and Annuity Scheme to avail of monthly Pension out of the investment towards Annuity.

   Annuity Service Providers (Life Insurance Companies)

  • HDFC Standard Life Insurance Company Limited
  • ICICI Prudential Life Insurance Company Limited
  • LIC Of India
  • SBI Life Insurance Company Limited
  • Star Union Di-ichi Life Insurance Company Limited

Subscriber can compare the annuity rates of the above ASP under the below are the Annuity Schemes and chose annuity plan and annuity service provider at the time of Exit:

Pension payable for life at a uniform rate to the Subscriber only Pension for life with return of purchase price on death of the Subscriber Pension for life with a provision of 100% of the annuity payable to spouse of the annuitant during his/her lifetime on death of the annuitant Pension for life with a provision of 100% of the annuity payable to spouse of the annuitant during his/her lifetime on death of the annuitant with return of purchase price on death of last survivor

Download PDF

 
 

To change personal details of the subscribers -

  1. Subscriber can login to CRA app to change some of his personal details on his own such as –
    1. Mobile no
    2. Email Id
    3. Scheme preference
    4. Tier 2 activation & withdrawal
    5. One way switch

  2. Customer can submit the Subscriber Modification form (download the form) to change below details
    1. Signature
    2. Nominee details
    3. Bank details
    4. Photograph
    5. Mobile no
    6. Email Id
    7. Scheme preference
    8. Tier 2 activation & withdrawal
    9. One way switch

 

NPS Grievance Reporting Mechanism:

4. Customer can call at – 1800 1200 1200

  1. Customer can log the Grievance using NPS Application of CRA
    1. Customer can log in to the application
    2. Customer to click on Support
    3. Select grievance category from the menu
    4. Select Grievance sub-category and provide grievance description
    5. Upload attachment if any and click on submit to submit the grievance
  2. Customer can submit the grievance form at the AU Bank branch (Download the form)
  3. Customer can write to us – [email protected]
  4. Customer can also connect with our Nodal Officers Click here for details
 

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