National Pension System: Eligibility, Tax Benefits & Registration Process

The National Pension System (NPS) is an attractive savings scheme for young people starting out their professional careers – whether private or public. Savings via NPS helps in securing funds for retirement. An NPS account registration can be made either online or offline with the requisite documents. The eligibility age for applying for the scheme is 18-65 years. Investing in the scheme also provides tax benefits under 80C of the Income Tax Act. Apart from security of funds, the NPS also provides a steady return of 9-12% depending on the market conditions & the nature of investments made by the subscriber.

Wed Sep 07 2022 | Employment, Criminal and Labour | Comments (0)

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The National Pension System or NPS is a retired savings scheme that can be entered into voluntarily by those interested. The purpose of the NPS is to begin the act of saving early for the latter stages of life, i.e., retirement. The attempt is to provide adequate retirement funds for every citizen.

Subscribers of the NPS scheme invest their wealth in the form of market instruments, such as debt and equity and the returns depend on their performance.


Current interest rates on NPS is about 8-10% of the funds invested


Whom does the scheme cover?

The eligibility criteria for subscribing to the scheme are as follows:

  • Open to all employees – public, private and unorganized sector.
  • Only exception is those employed in the Armed Forces.
  • Minimum age for opening NPS account is 18 years; maximum age is 65 years.
  • Mandatory ‘Know Your Customer’ (KYC) compliance.
  • No pre-existing NPS account at the time of subscribing.

What are the tax benefits of the scheme?

There are certain tax benefits provided to the subscribers of the NPS scheme. These benefits may be as follows:

  • Subscribers to the scheme can seek tax exemptions up to a maximum limit of INR 1.5 lakhs under Section 80C of the Income Tax Act. Contributions made by both the employee and employer can seek exemptions.
  • Under 80CCD(1): This is for self-contribution made to the scheme. The maximum deduction sought under this provision is up to 10% of the salary. For self-employed taxpayers, this limit rises to 20% of gross income.
  • Under 80CCD(2): This section specifically covers contributions made by employers in the NPS scheme. It does not apply to self-employed taxpayers. The maximum exemption that can be sought is the lowest of the following: (a) actual NPS contribution by the employer; (b) 10% of basic + dearness allowance; (c) Gross total income.
  • Additional self-contribution exemptions can be claimed for up to INR 50,000 under 80CCD(1B) as NPS benefit.

What are the other benefits of NPS?

Contributions to the NPS can have multiple benefits. Some of these are as follows:

  • Interest Returns: Interest rates vary from 9-12% and investment in NPS is best suited for those who are looking for long-term financial security, especially after retirement.
  • Tax Benefits: Exemptions can be sought for contributions to the NPS scheme under various provisions in the Income Tax Act. Contributions made by both the employee and employer are eligible for tax exemption. (More on this is provided in the tax section below)
  • Voluntary: NPS scheme is open to investment any time during the financial year and the amount of investment can also be changed by the subscriber as per convenience.
  • Flexibility: Option of investment and the pension fund can be chosen. This way the subscribers can best choose what works for their wealth.
  • Regulated: The scheme is regulated by the Pension Fund Regulatory & Development Authority of India (PFRDA). NPS offers transparency and reliability to its users with constant regulatory monitoring and regulated investment norms by the watchdog.

Required documents for applying to NPS scheme

In order to submit a successful NPS scheme application, the following documents are mandatory:

  • Subscriber registration form – obtained from the official NPS website or Point of Presence – Service Providers (POP-SP)
  • Scan of Permanent Account Number card (PAN)
  • Scanned cancelled cheque
  • Scanned signature and photograph – including some loose original photographs
  • ID proof
  • Date of Birth (DOB) proof
  • Residence proof (Phone Bill, Aadhaar, Electricity Bill etc.)

Process of registering with the NPS scheme

In order to register with the NPS scheme, the following steps have to be followed:

  • Obtain the Permanent Retirement Account Number (PRAN) application form from the official NPS website or POP-SP. Fill in the relevant details on the form correctly.
  • Submit the form at the nearest POP-SP. You can check for the nearest POP-SP at https://nsdl.co.in/. You can track your application through https://cra-nsdl.com/CRA/pranCardStatusInput.do
  • Once you visit the POP-SP, they will ask you for your relevant documents.
  • After verification and completion of all forms, you will have registered your NPS account.
  • You will receive a PRAN and a password to operate your account from the official website
  • The fees to be paid for the form and KYC verification sum up to INR 200. Find details about applicable fees at https://www.npstrust.org.in/content/charges-under-nps.

Online Registration

  • Visit the official website of the eNPS: https://enps.nsdl.com/eNPS/NationalPensionSystem.html
  • Register yourself with the website. Click ‘National Pension System’ on the right side of the page.
  • Under the registration page, click on ‘New Registration’.
  • Enter the asked details. These usually include: type of applicant, status, mode registration and account type.
  • If you choose to register with the PAN, you need to select a POP-SP for your KYC verification. POP-SPs can be bank or non-banking points.
  • If you choose to register with Aadhaar, you can pick between Aadhaar, Virtual ID or offline KYC verification modes.
  • Click on ‘Generate OTP’.
  • The registration form that you are redirected to will ask for the following details: Contact, Bank, Nomination, etc.
  • Once the registration is complete, you are obliged to make the initial contribution and pay the requisite KYC fees. For Aadhaar based registration, debit or credit card can be used.

Conclusion

NPS is a secure and regulated investment for long-term financial security. It has been encouraged amongst the younger working population to ensure that they are in the healthy habit of saving early on in their professional life. An investment in NPS can secure your retirement while providing healthy and steady returns until you get to that stage.

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