National Pension Scheme (NPS) is launched by the government to provide a pension to the working population of India. Initially, the scheme was launched for the government workforce and later expended to all populations of INDIA. The highlight of the scheme is its low-cost structure, efficient management, and tax benefits.

What is NPS?

The National pension scheme has universal appeal and has a very flexible and efficient structure to appeal to all kinds of people be it salaried or business persons.

Highlights of the scheme

• Any person in the age bracket of 18-65 years can join the scheme
• Citizens of India – residents or Non-residents can join
• Multiple investment choices like Equity(E), Government Debt(G), Corporate Debt(C)and Alternative Investment Fund (A)
• Contribution in TIER 1 type account qualifies for tax savings, TIER 2 is just like a savings bank account
• Administered through the statutory organization -Pension fund regulatory and development authority of INDIA(PFRDA).
• Multiple Income tax benefits through various sections like 80CCD(1) -Up to 1,50,000,80CCD(1)B -up to 50,000 and 80CCD(2) up to 10% of (Basic + DA) through employer.
• Withdrawal options -pre and post-retirement
• Multiple options for fund managers like SBI, HDFC, ICICI, etc
• The NPS account is transferable – you can transfer through multiple employers or companies
• Businesspersons can contribute up to 20% of gross income for tax saving purpose.
• In NPS one can do investment in monthly installment just like we do invest in mutual fund through SIP.

Tax benefits through NPS

There are various sections through which one can save income tax. The amount of tax saving which one can save through these sections is anything upward of 2 lakhs for salaried persons.

NPS investment portfolio and returns

The investment in NPS is not invested in a single asset class. The diversification is in multiple assets and avenues like Equity, Debt (Government and corporates) and IAFs.

In a long-time period, one can expect a 10-12% return from Equity investment,8-10% from debt investment and alternative investment funds.

At the portfolio level, the aggressive portfolio where equity exposer is more than 50% can give you a 9-11% return. And conservative portfolio can give you an 8-10% return.

Asset wise return is published by NPS trust on a regular basis. NAVs and returns can be seen using the following link. CLICK HERE

How to open NPS account

There are two modes to open an NPS account.ie online mode and offline mode / Physical Mode

For Physical mode

You can get and submit the filled form to empanelled service providers called POS like KARVY, ANGEL BROKING, UTI MUTUAL FUND, etc.

The application form along with photo id (PAN CARD), address proof and bank proof can be submitted to open the account.

The Time taken to open the account and charges to open the account is higher in offline mode.

For online mode (eNPS)

Through online mode, you can open the NPS account instantly, contribute investment along with other facilities.

There are two service providers for online mode. Namely KARVY and NSDL.

To open an online NPS account, the following are the requirements

• Online accesses to your bank account
• Scanned PAN CARD –(4kb-1mb)
• Scanned passport size PHOTO and SIGNATURE (4kb-50 kb)
• BANK proof – scanned Cancelled cheque /Passbook (4kb-2mb)

STEPS to open eNPS (Online) account

• Visit site either NSDL or KARVY
• Keep a scanned copy of PAN, PHOTO, SIGNATURE and BANK PROOF as advised
• Check on both the service providers POP list (registered intermediaries) whether your bank or broker registered with them for NPS account opening
  • In case your broker/BANK is registered -you can open eNPS account immediately
  • UTI MUTUAL FUND is also available as Point of presence, so in case you have an investment with UTI MUTUAL FUND, you can open NPS account

• After selecting your POP, you need to fill Contact details, Bank details.
• Next Select the PENSION FUND manager like SBI, HDFC, BIRLA, etc and investment option in a different asset class
• Upload all the scanned documents as required
• Fill the FATCA declaration – Your place of birth, taxation country, annual income, etc
• Pay through online mode to complete the registration. An acknowledgment will come to your email and message on your mobile.

Conclusion

National pension scheme (NPS) is boon for those who are seriously planning for their retirement. In NPS the withdrawal options are limited or low. One has to compulsorily opt for a pension of some amount.

Tax benefits are multiple in different sections of income tax.IE under section 80 CCD (1),80CCD (1)B and 80CCD (2).

NPS provides multiple options and maximum tax savings for individuals among tax saving instruments available.

Especially under section 80CCD (2) where one can ask their corporates to restructure their salary in such a way that 10% additional tax saving can be done without any upper limit. The employees having a high salary package can look for this option for higher tax savings.

In a long duration, it has the potential to give the highest return due to its low-cost structure and diversification. The Investment management fee is only 0.01%, probably the lowest in the world.

With current tax benefits and regulatory help, the scheme has the potential to outgrow other pension schemes available from mutual funds or other agencies. You can invest in the scheme for long term benefits.

I hope, this information will help you with better tax planning and investment decisions. Shubhwealth.