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
- Minimum contribution of INR 500 at the time of account opening
- Minimum contribution of INR 1,000 per annum
- Minimum contribution of INR 500 at any time
- Minimum number of contributions – one per annum
Tier II NPS Account
- Minimum contribution of INR 1,000 at the time of account opening
- Minimum contribution of INR 500 at any time
Tax Benefits under Investment in NPS
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NPS Account
|
Tax Benefit
|
|
Tier I
|
Self - Employed Individuals:
- 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
- Additionally, investment up to INR 50,000 is deductible from taxable income u/s 80CCD (1B) of Income Tax Act, 1961
Salaried Individuals:
- Investment upto 10% of salary (Basic + Dearness allowance) is deductible from taxable income u/s 80 CCD (2)
- Additionally, investment up to INR 50,000 is deductible from taxable income u/s 80CCD (1B) of Income Tax Act, 1961
|
|
Tier II
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There is no tax benefit on investment towards Tier II NPS Account
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Investment in Funds
There are four funds under NPS -
- Equities (E),
- Corporate Bonds (C),
- Government Securities (G)
- 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 50% and 5% of the total contribution respectively.
- Auto Choice: 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
| |
Aggressive Life Cycle |
Moderate Life Cycle |
Conservative Life Cycle |
| Age(Yrs) |
E |
C |
G |
E |
C |
G |
E |
C |
G |
| < = 35 |
75 |
10 |
15 |
50 |
30 |
20 |
25 |
45 |
30 |
| 36 |
71 |
11 |
18 |
48 |
29 |
23 |
24 |
43 |
33 |
| 37 |
67 |
12 |
21 |
46 |
28 |
26 |
23 |
41 |
36 |
| 38 |
63 |
13 |
24 |
44 |
27 |
29 |
22 |
39 |
39 |
| 39 |
59 |
14 |
27 |
42 |
26 |
32 |
21 |
37 |
42 |
| 40 |
55 |
15 |
30 |
40 |
25 |
35 |
20 |
35 |
45 |
| 41 |
51 |
16 |
33 |
38 |
24 |
38 |
19 |
33 |
48 |
| 42 |
47 |
17 |
36 |
36 |
23 |
41 |
18 |
31 |
51 |
| 43 |
43 |
18 |
39 |
34 |
22 |
44 |
17 |
29 |
54 |
| 44 |
39 |
19 |
42 |
32 |
21 |
47 |
16 |
27 |
57 |
| 45 |
35 |
20 |
45 |
30 |
20 |
50 |
15 |
25 |
60 |
| 46 |
32 |
20 |
48 |
28 |
19 |
53 |
14 |
23 |
63 |
| 47 |
29 |
20 |
51 |
26 |
18 |
56 |
13 |
21 |
66 |
| 48 |
26 |
20 |
54 |
24 |
17 |
59 |
12 |
19 |
69 |
| 49 |
23 |
20 |
57 |
22 |
16 |
62 |
11 |
17 |
72 |
| 50 |
20 |
20 |
60 |
20 |
15 |
65 |
10 |
15 |
75 |
| 51 |
19 |
18 |
63 |
18 |
14 |
68 |
9 |
13 |
78 |
| 52 |
18 |
16 |
66 |
16 |
13 |
71 |
8 |
11 |
81 |
| 53 |
17 |
14 |
69 |
14 |
12 |
74 |
7 |
9 |
84 |
| 54 |
16 |
12 |
72 |
12 |
11 |
77 |
6 |
7 |
87 |
| > =55 |
15 |
10 |
75 |
10 |
10 |
80 |
5 |
5 |
90 |
Withdrawal From NPS Account
Partial withdrawal is allowed after three years up to 25% of his own contributed amount (and not the Corpus) from the date of Tier I account opening / Last partial withdrawal date.
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 INR 2.5 lakh, there is no mandate to invest in to annuity
Exit on Maturity:
Closure 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 INR 5 lakh, there is no mandate to invest in to annuity
Tax Treatment At The Time Of Exit From NPS Tier I Account:
1. Tax Treatment on Lumpsum corpus withdrawal
- Partial Withdrawal: Corpus withdrawn is tax exempt
- Pre-Mature Exit: Corpus withdrawn in lump sum is tax exempt
- Exit on Maturity: 60% of Corpus withdrawn in lump sum is tax exempt.
2. 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
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.
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
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To change personal details of the subscribers -
- Subscriber can login to CRA app to change some of his personal details on his own such as –
- Mobile no
- Email Id
- Scheme preference
- Tier 2 activation & withdrawal
- One way switch
- Customer can submit the Subscriber Modification form (download the form) to change below details
- Signature
- Nominee details
- Bank details
- Photograph
- Mobile no
- Email Id
- Scheme preference
- Tier 2 activation & withdrawal
- One way switch
NPS Grievance Reporting Mechanism:
- Customer can call at – 1800 1200 1200
- Customer can log the Grievance using NPS Application of CRA
- Customer can log in to the application
- Customer to click on Support
- Select grievance category from the menu
- Select Grievance sub-category and provide grievance description
- Upload attachment if any and click on submit to submit the grievance
- Customer can submit the grievance form at the AU Small Finance Bank branch (Download the form)
- Customer can write to us – [email protected]
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