Ready to Invest in National Pension System (NPS)? Start in 2024 with this Master Guidelines

Master Guidelines for the National Pension System (NPS), All Citizen Scheme.

What’s New! 🎉

• 2023: Facility of Systematic Lump sum Withdrawal (SLW) on a periodical basis (i.e.) monthly, quarterly, half yearly or annually for a period till 75 years for NPS Subscribers
• 2022: Facility of payment of subscriptions / contributions using Credit Card as a mode of payment towards NPS Tier II accounts has been stopped by PFRDA.
• Timeline for settlement of Withdrawal requests of subscribers at the time of exit from NPS scheme reduced from T+4 to T+2 working / settlement days.
• According to the revised guidelines, any Indian citizen, whether resident or non-resident, as well as Overseas Citizens of India (OCI) aged between 18 and 70 years, can join the NPS and continue or defer their NPS account until the age of 75.

The National Pension System is a defined-contribution pension system in India regulated by Pension Fund Regulatory and Development Authority (PFRDA) which is under the jurisdiction of Ministry of Finance of the Government of India.

National Pension System (NPS) is a voluntary retirement savings scheme laid out to allow the subscribers to make defined contribution towards planned savings thereby securing the future in the form of pension.

PFRDA has appointed Protean e-Gov Technologies as Central Recordkeeping Agency (CRA) for NPS. National Pension System, is an EEE (Exempt-Exempt-Exempt) instrument in India where the entire corpus escapes tax at maturity and entire pension withdrawal amount is tax-free.

New Pension Scheme was implemented with the decision of the Union Government to replace the Old Pension Scheme which had defined-benefit pensions for all its employees. Notification No. 5/7/2003-ECB issued by Ministry of Finance (Department of Economic Affairs)’s in a Press Release dated 22.12.2003 mandated NPS for all new recruits (except armed forces) joining government services from 01.01.2004.

On 10.12.2018, the Government of India made NPS an entirely tax-free instrument in India where the entire corpus escapes tax at maturity; the 40% annuity also became tax-free. Any individual who is Subscriber of NPS can claim tax benefit for Tier-I account under Sec 80 CCD (1) with in the overall ceiling of ₹1.5 lakh under Sec 80 C of Income Tax Act. 1961. An additional deduction for investment up to ₹50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B).

The changes in NPS was notified through changes in The Income-tax Act, 1961, during the 2019 Union budget of India. There is no tax benefit on investment towards Tier II NPS Account. NPS is limited EEE, to the extent of 60%. 40% has to be compulsorily used to purchase an annuity, which is taxable at the applicable tax slab.

Salient Features & Scheme Guidelines of NPS (National Pension System) 💰

Objective 🎯

NPS is an important milestone in the development of a sustainable and efficient voluntary defined contribution pension system in India. It has the following broad objectives:

• Provide old age pension.
• Reasonable market based returns over the long term.
• Extending old age security coverage to all citizens.

Eligibility ✅

Individuals 👤

• An Indian Citizen (resident or nonresident) or an Overseas Citizen of India (OCI)
• Should be aged between 18 – 70 years.
• Compliance of Know Your Customer (KYC) norms detailed in the Application Form.
• Hindu Undivided Families (HUFs) and Persons of Indian Origin (PIOs) are not eligible for subscribing to NPS.

Corporates 🏢

• Entities registered under the Companies Act, 2013 or a cooperative society registered under any law relating to Co-operative societies
• Bodies established or incorporated under any act of Parliament or any law enacted by a State legislature or under any order/notification issued by the Central / State Government
• Public Sector Enterprises or any Government company
• Registered Partnership Firms
• Limited Liability Partnerships (LLPs)
• Proprietary Concerns
• Trusts / Society
• Foreign companies having registration u/s 591- 608 of Companies Act 1956 in respect of their eligible Indian employee(s)
• Foreign / diplomatic missions operating in India (Embassy/High Commission/Consulate etc.) in respect of their eligible Indian employee(s)
• International Organizations operating in India (UN / WHO / World Bank / ADB / IMF etc.) in respect of their eligible Indian employee(s)

Documents Required for Registration 📄

Resident Individual:

• One Recent Photograph
• PAN Card
• Proof of address – India
• Proof for the Saving Bank Account

Non-resident Individual (NRI) / Overseas Citizen of India (OCI):

• One Recent Photograph
• PAN Card & OCI Card
• Proof of address – foreign country
• Proof for the Bank Account (NRE/NRO)

Types of Account 📁

Tier – I

• Individual Pension Account
• Withdrawal as per rules/regulations only
• Minimum contribution to open Rs. 500
• Minimum contribution per year Rs. 1000
• There is no upper limit for the maximum contribution
• Tax benefits are available

Tier – II

• Optional Account – Require an active Tier-I
• Unrestricted withdrawals
• Minimum contribution to open Rs. 1000
• Minimum contribution Rs. 250
• There is no upper limit for the maximum contribution
• No tax benefits on contribution/gains

Note:

• NRI/OCI having Tier-I account are restricted to activate Tier-II account
• Subscriber can select different Pension Fund and Investment Option for his/her NPS Tier I and Tier II accounts.

Account Opening & Contribution Modes 🔀

Physical mode (Offline mode)
By visiting any of the registered service provider (Bank branch) and depositing cheque/cash along with the NPS contribution slip.

Online mode (e-mode) :
1. Online platform eNPS of NPS Trust
2. Through Canara Bank Ai1 mobile app, Net banking

Rate of Interest 📈

The National Pension System scheme does not have a fixed rate of interest, but the returns are based on the market performance of the funds as the investments are made in market-linked securities.

Investment Choices 🌱

The NPS contributions made by a subscriber will get invested as per the subscriber choices (Pension Fund and Asset allocation) exercised and recorded with CRA. The following choices are available to the subscribers:

Active Choice

Subscriber actively decides on the allocation of funds across:

Asset Class E or Equity upto a maximum of 75%
Asset Class C or Corporate Bonds upto a maximum of 100%
Asset Class G or Government Securities upto a maximum of 100%
Asset Class A or Alternate Assets upto a maximum of 5%

Auto Choice

The funds of the subscriber gets invested across 3 asset classes (Equity, Corporate Bonds & Government Securities) in pre-determined proportion as per the age of subscriber. The initial allocation across three asset classes remains constant till 35 years of age and thereafter allocation to equity gradually declines every year.

Following are the 3 Life Cycle Funds:

• Aggressive (LC-75) – Maximum Equity exposure is 75% up to the age of 35 and gradually reduces as per the age of subscriber.
• Moderate (LC-50) – Maximum Equity exposure is 50% up to the age of 35 and gradually reduces as per the age of subscriber.
• Conservative (LC – 25) – Maximum Equity exposure is 25% up to the age of 35 and gradually reduces as per the age of subscriber.

Note:

• Subscriber can select different Pension Fund and Investment Option for his/her NPS Tier I and Tier II accounts.
• NPS offers its subscriber the option to change the scheme preference four times in a financial year.

Tax Benefit 💵

Individuals

Any individual who is Subscriber of NPS can claim tax benefit under Sec 80 CCD (1) with in the overall ceiling of Rs. 1.5 lac under Sec 80 CCE.

An additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs. 1.5 lakh available under section 80C of Income Tax Act. 1961.

Corporate Subscriber:

Additional Tax Benefit is available to Subscribers under Corporate Sector, u/s 80CCD (2) of Income Tax Act. Employer’s NPS contribution (for the benefit of employee) up to 10% of salary (Basic + DA), is deductible from taxable income, without any monetary limit.

Corporates:

Employer’s Contribution towards NPS up to 10% of salary (Basic + DA) can be deducted as ‘Business Expense’ from their Profit & Loss Account.

Tax Benefits in Tier-I Account

The Subscriber can submit the Transaction Statement as an investment proof. Alternatively, Subscriber from “All Citizens of India” can also download the receipt of voluntary contribution made in Tier I account for the required financial year from NPS account log-in.

Apart from tax benefits available under 80CCD, below are the other tax benefits available under NPS:

1. Tax benefits on partial withdrawal:
   Subscriber can partially withdraw from NPS Tier-I account before the age of 60 for specified purposes. According to Budget 2017, amount withdrawn up to 25% of Subscriber contribution is exempt from tax.
2. Tax benefit on Annuity purchase:
   Amount invested in purchase of Annuity, is fully exempt from tax. However, annuity income that you receive in the subsequent years will be subject to income tax.
3. Tax benefit on lump sum withdrawal:
   After Subscriber attain the age of 60, up to 40% of the total corpus withdrawn in lump sum is exempt from tax.
   
   For example: If total corpus at the age of 60 is 10 lakhs, then 40% of the total corpus ie 4 lakhs, you can withdraw without paying any tax. So, if you use 40% of NPS corpus for lump sum withdrawal and remaining 60% for annuity purchase at the time of retirement, you do not pay any tax at that time. Only the annuity income that you receive in the subsequent years will be subject to income tax.

Note:
There is no tax benefit on investment towards Tier II NPS Account.

Withdrawal/Exit 🔚

Withdrawal/Exit from NPS Tier-I Account is subject to the following conditions:

Partial Withdrawal:

After completion of 3 (Three) years subscriber can withdraw 25% of his/her own contributions for specific reasons viz illness, disability, education or marriage of children, purchasing property, starting a new venture.

A subscriber can partially withdraw upto a maximum of 3 times during his/her entire tenure in NPS.

Premature Withdrawal:

In case of pre-mature exit (exit before attaining the age of superannuation/attaining 60 years of age) from NPS, at least 80% of the accumulated pension wealth of the Subscriber needs to be utilized for purchase of an annuity providing for a regular pension to the Subscriber and the balance pension wealth is paid as a lump sum to the Subscriber.

However, Subscriber can exit from NPS only after completion of 5 years in NPS. In case the total corpus in the NPS account is less than or equal to Rs. 2.5 lakh, the Subscriber can avail the option of complete (100%) Withdrawal.

Normal Withdrawal

When a Subscriber reaches the age of Superannuation/attaining 60 years of age, at least 40% of the accumulated pension wealth of the Subscriber needs to be utilized for purchase of an Annuity providing for a regular pension to the Subscriber and the balance pension wealth is paid as lump sum to the Subscriber.

In case, the total corpus in the NPS account is less than or equal to Rs. 5 lakh, Subscriber can avail the option of complete (100%) Withdrawal.

Subscriber also has the option to:

1. Continue in NPS till the age of 75 years or exit any time after such continuance before 75 years.
2. While exiting from NPS, subscriber can
   • Defer receiving the lumpsum (60% corpus) till the age of 75 years or withdraw the same in installments till 75 years
   • Defer Annuity purchase (40% corpus) for a maximum period of 3 years.
   • Systematic Lump Sum Withdrawal (SLW) explained below:

Systematic Lump Sum Withdrawal (SLW)

As per the existing Exit guidelines, the subscribers post 60 years/superannuation can defer availing of annuity & withdrawing the lump sum on any combination till 75 years of age. The lump sum amount can be withdrawn in a single tranche or it can be withdrawn on an annual basis. If withdrawn annually, the Subscriber has to initiate the withdrawal request each time and authorized.

It is proposed to provide the option of phased withdrawal of the lump sum through Systematic Lump Sum Withdrawal (SLW) facility. The subscribers are allowed to withdraw up to 60% of their pension corpus, through the SLW on a periodical basis viz. monthly, quarterly, half-yearly or annually for a period till 75 years of age as per the choice at the time of their normal exit.

Note:

• In case of unfortunate event of death of a subscriber, the nominee/legal heir can withdraw the entire accumulated corpus. The nominee / family members of the deceased subscriber can also purchase annuity, if they so desire.
• Withdrawal/Exit from NPS Tier-II Account is unrestricted and will be compulsorily closed upon closure of Tier-I Account.

Charges 💲

Each intermediary is entitled to recover the following prescribed charges from the subscriber towards the services rendered by them:

The following prescribed modified charges to be debited from the subscribers w.e.f. 01.02.2022:

Charges head	Service Charges
Subscriber registration	₹ 200/-  (To be collected upfront)
Contribution charges	0.5% of contribution amount Minimum ₹ 30/- Maximum ₹ 25000/- (To be collected upfront)
Charges for all non-financial transaction	Rs. 30/- plus GST per transaction
Persistency charges through cancellation of units (only for NPS All Citizen) modified slab wise based on annual contribution	Rs. 100/- p.a. plus GST
e-NPS subsequent contribution charges	0.20% of  the contribution amount plus applicable GST subject to minimum of Rs. 15/- and maximum of Rs. 10000/- (w.e.f. 15th Feb 2022)
Charges for processing of Exit/Withdrawal	0.125% of the total corpus plus GST with minimum of Rs. 125/- & Max Rs. 500/-

National Pension System (NPS) – Corporate Sector Model 💼

The Pension Fund Regulatory and Development Authority (PFRDA) has introduced the NPS Corporate Sector Model for employees of corporate entities, including Public Sector Undertakings. Points of Presence (POPs) will handle all necessary functions, and corporates have the option to co-contribute to their employees’ pensions.

Corporates can join the NPS through any of the existing POPs under the model available for all Indian citizens. POPs or POP Service Providers (POP-SP) will manage tasks such as subscriber registration, KYC verification, receiving contributions and instructions from the corporate, and transmitting these to designated NPS intermediaries like the Central Recordkeeping Agency (CRA), Trustee Bank, Pension Fund Managers (PFMs), and others.

Benefit to Corporate

1. Platform to contribute for employee’s pension.
2. Corporate may select choice of Pension Fund Managers (PFM) for its employees or leave the option to employees for selecting PFMs for themselves.
3. Funds are managed by fund managers from Public & Private sector with a proven track record.
4. Can claim tax benefits for the amount contributed towards pension of employees. From 1st April 2012, upto 10% of the salary (basic and dearness allowance) of employer’s contribution can be deducted as ‘Business Expense’ from their P & L account.

Subscribers

• Between 18 – 60 years of age, compliance to KYC norms.
• The registered employees of the corporate entity enrolled by the employer.
• Portable across geographies and employers.
• Subscriber wise separate individual pension account.
• Eligible for tax exemptions as per I T Act, 1961 as amended from time to time.
• Cheapest investment product with better growth options through long term market linked savings.
• Choice of investment mix and Pension Fund Managers or select Auto Option to get better returns, if option provided by the corporate.
• Option to switch savings between investment schemes as per the terms of employment, subject to conditions and charges as prescribed by PFRDA.
• Offers Tier II account – a voluntary savings facility with any time liquidity option.
• All transactions can be tracked online through CRA web site, by employer / employee.
• Efficient grievance management through CRA website, Call Center, Email, etc .
• Auto choice option (life cycle fund) for those who do not have the required knowledge to manage their investment.
• Release of daily NAV by PFMs for better investment decisions.

Nomination 👤

• Subscriber is allowed to register up to three nominees in NPS.
• Minor can be a nominee in NPS account. In such case, Subscriber will be required to provide guardian’s details and date of birth of the minor.
• The subscriber needs to specify the share of each nominee.
• Any changes in the nomination post death of the Subscriber using the deceased Subscribers’ login credentials shall be treated as invalid.
• All those cases with those invalid nominations, the valid nomination made by the Subscriber (valid nomination are those which fulfill nomination rules defined by PFRDA as provided in its exit Regulations & the same provided at Annexure) before death shall be considered for claim processing.
• Those cases with invalid nomination and as defined in Exit Regulations 3(c) & 4(c)in Government and Non-Government Sector respectively, the claims need to be processed by the respective intermediary and the eligible corpus has to be paid to the legal heirs.
• Subscribers covered under Govt Sector (sub-clause(c) of Regulation 3) and Corporate sub-clause(c) of Regulation 4, where no valid nomination exists in accordance with exit regulations: At the time of exit of such subscriber on account of death, the nomination, if any existing in the records of such subscriber with his or her employer for the purpose of receiving other admissible terminal benefits shall be treated as nomination exercised for the purposes of receiving benefits under the NPS as per the provisions of Exit Regulations 32(xii).
• The intermediaries associated with processing of claims are to be provided with the required functionality/ system interface in their user login by CRAs to capture the claimant details viz legal heirs or nominee as per employer records as the case may be, if those invalid nominations are observed. In the system interface, the employer has to specify and declare and certify that the nomination exists in the service record of the employee are being considered for claim settlement.
• In case of Subscribers under UOS: Any changes in the nomination post death of the Subscriber using the deceased Subscribers’, login credentials shall be treated as invalid and the amount needs to be settled in favour of legal heirs.
• A fresh nomination shall be made by the subscriber on his marriage and any nomination made before such marriage shall be deemed to be invalid.

NPS – Initiatives through Digi Locker 🛡️

1. PFRDA has allowed individuals to open a NPS account using the Digi Locker platform.
2. The existing subscriber can also update their present address in the NPS account using the Digi Locker facility.

The Ministry of Electronics and IT (MeitY) developed Digi Locker, an online document storage wallet under its Digital India initiative. Individuals can also use it to store documents digitally and verify their credentials, including their aadhar card, driving license and high school marksheet.

Launch of D-Remit 📲

PFRDA had informed about the proposed launch of an additional option / mode of contribution namely Direct Remittance (D-Remit) wherein the existing NPS Subscribers under Government / Non Government / All Citizens Model would be able to deposit their voluntary contributions by creating a Virtual ID linked to their Permanent Retirement Account Number( PRAN).

D-Remit not only eases the mode of deposit of voluntary contributions by the Subscribers, but would also optimize the investment returns by providing the same day NAV on the investments, if the contribution is received at Trustee Bank by 8.30 AM on any Bank working day except Saturday, Sunday and public holidays.

Further, D-Remit enables a subscriber to set up Systematic Investment through Auto Debit /Standing Standing instructions in net banking by which periodical and regular contributions can be made viz daily, monthly quarterly etc.

The minimum value of D-Remit is Rs.500 per transaction in both Tier I and Tier II accounts. The virtual Ids are unique for Tier I and Tier II.

NPS Subscribers who are desirous of availing D-Remit facility would be required to access the respective CRA System and generate Virtual ID linked to their PRAN:

Post authorization of Virtual ID, subscribers can log-in to their Net Banking add Virtual ID generated, as a beneficiary account, with IFSC- UTIB0CCH274, to transfer their voluntary contributions. It is important to note that the generation of Virtual ID is one time exercise and the virtual ID remains static and can be used to deposit voluntary contributions in future also.

National Pension System for Non Resident Indians (NRIs) ✈️

1. RBI has permitted NRIs to subscribe to the NPS governed and administered by the PFRDA.
2. The subscription amounts shall be paid by the NRIs either by inward remittance through normal banking channels or out of funds held in their NRE/FCNR/NRO account. There shall be no restriction on repatriation of the annuity/ accumulated savings.
3. Canara bank is registered as Point of Presence (POP) by PFRDA for mobilizing NPS accounts. Presently Bank is handling NPS accounts pertaining to its own employees under Corporate Model. PFRDA has launched an online facility (e-NPS) on the NPS Trust Website to subscribe for NPS by the general public.
4. Online account opening for NPS has been well taken by the subscribers & the facility is available in two modes
   • Through Aadhaar based registration
   • Through PAN and Bank KYC Verification
5. In case of subscriber opting for PAN and Bank KYC verification, the Bank which are acting as POP are required to provide the KYC verification. In this process, there is a two stage online KYC verification of subscribers – first, verification of PAN details by the Central Recordkeeping Agency (CRA) appointed by PFRDA and second, verification of address and identity by the Bank. Once, PAN verification is successfully done in the CRA system, the details will be made available to respective Bank (selected by Subscriber during the registration) for KYC verification.