NPS

Under NPS, Subscriber gets the option to open two accounts known as Tier I account and Tier II account. A Tier I account is mandatory to open in order to join NPS. Tier II account is optional and can be opened at any point of time – at the time of opening Tier I account or later.

Difference between Tier I and Tier II accounts are as mentioned below

Tier I NPS Account	Tier II NPS Account
It is also known as Pension account	It is known as investment account
Withdrawal from this account is permitted after 10 years of account opening or attaining the age 60 years whichever comes early	Withdrawal from this account can be done at any point of time as per Subscriber’s need
Minimum annual contribution required for this account is Rs. 1000	NA

 

Subscriber gets a choice of 4 funds under NPS – Equity, Corporate Bonds and Government Securities. These are also known as E, C and G respectively.

Subscriber gets the freedom to decide her own asset mix restricting the exposure to Equity to 75% of Contribution amount. It is called Active Choice Investment option.

• 2.5% tapering off on Equity Asset Class will happen yearly once the subscriber attains the age of 50 years.

Subscriber also gets an option of Life Cycle Fund is also known as Auto Choice. Under this mode, investment across three funds is done as per the age of the employee.

 The re-alignment of portfolio under Auto Choice is system driven and is exercised on the date of birth of the Subscriber.

Following flexibilities are given to Subscribers:

• Subscriber can have different Investment Choice (Auto / Active) for Tier I and Tier II account
• Subscriber can change the Asset Mix and Investment Choice once in a Financial year for both Tier I and Tier II account

Exit from the Scheme

Subscriber can exit from the Scheme after 10 years of account opening or on attainment of the age 60 years whichever is early. The payout will be defined as per the exit age of the Subscriber.

Exit before the age 60 years	Exit at the age 60 years
Up to 20% of Corpus can be withdrawn in lump sum Balance amount needs to be invested in Annuity	Up to 60% of Corpus can be withdrawn in lump sum Balance amount needs to be invested in Annuity
If the Corpus is less than or equal to Rs.1 lakh, there is no need to invest into Annuity. Entire amount can be withdrawn in lump sum	If the Corpus is less than or equal to Rs.2 lakhs, there is no need to invest into Annuity. Entire amount can be withdrawn in lump sum

Subscriber exiting from NPS at the age of 60 gets following flexibilities

• Subscriber can defer the decision to invest in Annuity for 3 years.
• Subscriber can defer the decision of lump sum withdrawal for 10 years.
• Lump sum amount due for withdrawal at the age 60 can be withdrawn in 10 installments as per the choice of the Subscriber.
• If Subscriber does not want to exit at the age of 60 years, she can keep on contributing towards NPS till the age 70 years.

Death Benefit

In case of death of the Subscriber the entire Corpus is given to the nominee. In case Subscriber has not opted for any nominee, the legal heir can claim the amount.

Partial Withdrawal from the Scheme

In the entire life span, 3 partial withdrawals are allowed from Tier I account before attainment of at 60 years as shown below

• First partial withdrawal allowed after 3 years of NPS account opening
• 2nd & 3rd partial withdrawal can be opted at anytime after the 1st partial withdrawal is done

25% of the Contribution amount will be allowed for specific purposes like Child marriage, Higher education, Treatment of Critical illnesses, buying home etc.

Investment in Annuity

As discussed above, on exit from NPS or retirement some portion of Corpus has to be invested into Annuity scheme to provide monthly pension then after. Entities registered with PFRDA to provide annuity service are

• HDFC Life Insurance Company Limited
• ICICI Prudential Life Insurance Company Limited
• Star Union Dai-ichi Life Insurance Company Limited
• Life Insurance Corporation of India
• SBI Life Insurance Company Limited

 

NPS offers wide range of benefits to individuals, making it a unique investment opportunity. Some of the salient features of NPS are

• Portable Account – the NPS account (PRAN) remains the same irrespective of change of employment or geography.

 

 

Tax Benefits and Treatment

Tax benefits under Tier I and Tier II Account are as per below table

NPS Account	Tax Benefit	Tax Treatment
Tier I	Salaried Individual 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 lakhs limit of section 80C Additionally, investment up to Rs.50,000 is deductible from taxable income u/s 80CCD (1B) of Income Tax Act, 1961 Self Employed Professionals 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 Rs.50,000 is deductible from taxable income u/s 80CCD (1B) of Income Tax Act, 1961	Up to 40% of Corpus withdrawn in lump sum is exempt from tax Balance amount invested in Annuity is also fully exempt from tax Pension received out of investment in Annuity is treated as income and will be taxed appropriately
Tier II	There is no tax benefit on investment towards Tier II NPS Account	Indexation benefit can be claimed

A citizen of India, whether resident or non-resident can join NPS, subject to the following conditions:

1. Subscriber should have age between 18 – 65 years as on the date of submission of his/her application to the Point of Presence (POP) / Point of Presence–Service Provider -Authorized branches of POP for NPS (POP-SP).
2. Subscriber should comply with the Know Your Customer (KYC) norms as detailed in the Subscriber Registration Form.

The following applicants cannot join NPS:

1. OCI and POI in the category of people who cannot open NPS account
2. Un-discharged insolvent
3. Individuals of unsound mind
4. Pre-existing account holders under NPS