20 Common FAQs on NPS(National Pension System)
National Pension System (NPS) is a Voluntary Defined Contribution Pension System, initiated by Government of India. It is also called as ‘New Pension Scheme’ as the Government decided to stop the Defined Benefit Pension system and started this NPS for all its employees who had joined after January 1st, 2004.
At the early stage, this new system launched only for the Government Employees under the Govt. of India, and then it was opened for all Citizens of India. The NPS is nothing but, a pension cum investment scheme, where a little contribution made by the Employees and Employers like a Provident fund in a NPS account and it’s just planned for the long term retirement fund.
The derived amount of contribution from both the employees and employers would be invested in a market based fund and returns were also depending upon the market and deliver in the retirement stage.
The NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and a trust created under its control, NPS Trust (NPST) setup and owned by PFRDA. The NPS can be broadly classified into different categories like,
- Government Sector
- Non-Government Sector
The Government Sector can be divided as Central Government and State Government; the Central Govt. itself introduced the NPS with effect from 1st January, 2004. It is also a mandatory one for the Central Govt. employees to contribute for the NPS. For the Armed Forces, the NPS is not applicable and it had the existing (Old Pension) defined benefit system. Central Government Employees contribute towards the retirement pension, from monthly salary along with matching contribution from the employer.
The State Government has the option, and some of the State Governments adopted this NPS with effect from different dates. State Government employees can also contribute towards retirement pension, from monthly salary along with matching contribution from the employer.
On the other side, the Non-Government or called as Private Sector is the customized version of NPS to suit various organizations and their employees to adopt NPS as an organized entity within purview of their employer-employee relationship.
Any Citizens of India, who not being covered by the above sector (Government or Private Sector) has been allowed to join NPS under All Citizens of India sector from May 1st, 2009.
The NPS is also a Tax saving Instrument comes with EET (Exempt-Exempt-Taxable) under Investment-Returns-Exit. NPS also looks like a similar to 401(K) retirement plans of the United States which introduced in the year of 1978.
Here, we are shorting with 20 Common Frequently asked questions (FAQs) regarding on NPS. It may help you on a go way.
1) What are the Benefits of NPS ?
- Low Cost Pension cum Investment Scheme
- Tax Exemption for everyone (Individual, Employees and Employers)
- Market based Returns
- Easily Manageable
- Regulated by Govt. of India (PFRDA) and handled with experienced Fund Managers
- Opportunity to invest in equity oriented investments
2) What is the Age Limit for Joining NPS ?
Any individual as a Citizen of India in the age limit between 18-65 years can join NPS. Even NRI can also apply.
Overseas Citizens of India (OCI), Person of India Origin (PIO), and Hindu Undivided Family (HUF) are not eligible to apply.
Only one NPS account can be opened on behalf of Individual capacity. NPS cannot be opened as Jointly or on behalf of HUF. One can open the NPS account online (e-NPS) through KYC process (Aadhaar based or PAN based) or offline with the nearest Point of Presence (POP).
NPS Account opening online: https://enps.nsdl.com/eNPS/
3) What is Permanent Retirement Account Number (PRAN) ?
After successful submission of NPS registration, an Individual or employee will receive a Permanent Retirement Account Number (PRAN). Hereafter, an Individual or employee will be referred as NPS Subscriber. The PRAN of Subscriber is like a Bank account number where the regular amount of contribution recorded on his / her account.
The PRAN is a 12 Digit Number is allotted to the NPS Subscriber and maintained by CRA (Central Record Keeping Agency).
4) How Much money can I invest in NPS ?
NPS can have two types of account, Tier I and Tier II. The Tier I is a mandatory one for the Government Employees and a non-withdrawable account, where the Tier II is a voluntary one. So that one can withdraw amount on Tier II at anytime.
The NPS Subscriber (Tier I) has minimum amount per contribution is Rs.500/- and minimum contribution per financial year is Rs.1000/-. Minimum number of contribution in a financial year is, at least one time. The Tier II Subscriber has minimum amount per contribution is Rs. 250/- and there is no minimum balance required. In case, the NPS Subscriber failed to contribute the minimum amount, then the PRAN account is frozen. The Subscriber also not allowed contributing further. But, Subscriber can unfreeze the PRAN account to contribute the required amount and the penalty charges may apply.
There is no upper or maximum limit to invest.
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5) What is the difference between Tier I and Tier II ?
Tier I is a mandatory account for the Govt. Employees and is a non-withdrawable PRAN account. It is also like a Pension account, where the withdrawal is permitted after 10 years of account opening, but with the limited reasons or attaining the age of 60 years whichever comes early.
The Minimum contribution amount is Rs. 1000 /- in a financial year for Tier I.
The Tier II account is a Savings or Investment account, where withdrawal is permitted at any point of time and there is no minimum contribution.
For initial account opening, Rs. 500/- for Tier I and Rs. 1000/- for Tier II is the minimum required amount. If the subscriber wants to open both the Tier I and Tier II simultaneously, then the minimum required amount is Rs. 1500/- as Initial account opening contribution.
6) Can I open Tier II account alone ?
As per NPS terms, an individual or employee can open only one NPS account on his /her name. But, he or she can open the Tier I and Tier II account on his single PRAN account.
Tier II is the optional one for the subscriber, but the Tier I is a mandatory for any subscriber. If one needs a Tier II account, then he should open the Tier I account first. So, the subscriber cannot apply only for the Tier II account.
7) In case of Loss or Damage of PRAN – NPS Card ?
If the subscriber loss the PRAN card or has a damaged card, he can submit a form (S2) to the nearest POP(Point of Presence) for issuance of duplicate PRAN card. For the Govt. employees, the POP may the personal or welfare department. Service charge may apply for issuance of Duplicate Card.
8) Is there any Tax Benefit available for NPS ?
Yes, Tax Benefit available for NPS Tier I account under section 80 CCD(1) of IT act 1961, subject to Rs. 1.5 Lakhs limit of u/s 80C. An additional investment up to Rs. 50,000/- is deductible from taxable income under section 80CCD(1B) of IT act 1961.
Tier I account comes under EET Status (Exempt-Exempt-Tax), where the investment and returns are exempted, but the withdrawal / exit / pension amount is treated as income and taxed as per slab.
There is an exemption from tax up to 40 percent of corpus withdrawn as lump sum and the balance amount is invested in an Annuity is fully exempted. Pension or income received from annuity will be treated as income and will be taxed per slab.
For Tier II account, there is no tax benefit, but one can make indexation benefit on withdrawal.
9) How can I withdraw my amount partially or exit my NPS account ?
For the Partial amount withdrawal from Tier I account, the subscriber can withdraw up to 25 percent of his /her contributed amount
after 10 years of account opening. The subscriber should be allowed to withdraw twice (Excluding premature exit) on his entire NPS account life. A gap of 5 years after the first partial withdrawal is applied.
PFRDA published a circular regarding the process of Partial withdrawal request(Cir.No PFRDA/2018/40/Exit dated 10.01.2018).
The Partial Withdrawal shall be allowed only, if
- the subscriber shall have been in the NPS at least for a period of three years from the date of his or her joining;
- the subscriber shall be permitted to withdraw accumulations not exceeding 25 percent of the contributions made by him or her and standing to his or her credit in his or her individual pension account, as on the date of application for withdrawal;
- Frequency: the subscriber shall be allowed to withdraw only a maximum of 3 times during the entire tenure of subscription under the NPS.
For more details, download the NPS-Partial-Withdrawal-rules-2018-notification
The Conditions for partial withdrawal may permitted for Special or Specific purposes like Higher Education, Child’s Marriage, Treatment for Critical Illness. Kindly note that In case of Critical illness, the 5 years gap condition will not applicable.
For exiting from NPS, the subscriber can exit only after 10 years of account opening or attaining age of 60 years, whichever comes first.
If exit (Tier I) before attaining of 60 Years,
- Withdrawal up to 20 percent as lump sum.
- Balance amount would be invested in Annuity.
- If the accumulated corpus is less than or equal to Rs. 1 Lakh, then the entire amount can be withdrawn as lump sum. No need to invest in Annuity on this circumstance.
If exit (Tier I) after 60 years or Retirement age,
- Withdrawal up to 60 percent as lump sum.
- Balance amount would be invested in Annuity.
- If the accumulated corpus is less than or equal to Rs. 2 Lakh, then the entire amount can be withdrawn as lump sum. No need to invest in Annuity on this circumstance.
In case of exit and withdraw amount at Retirement stage,
- The Subscriber can defer or postpone the withdrawal option till 10 years depending upon the market condition (After Retirement). Subscriber can also withdraw his /her amount as lump sum or withdraw in 10 installments before attaining the age of 70 years.
- On postponing the withdrawal, it continues to remain invested by the same scheme.
- For the premature exit or before attaining age of 60 years, Subscriber doesn’t have the option to postpone it.
On Tier II account, there is no limitation on withdrawal. Subscriber can invest and withdraw at any point of time.
In case of Death, the subscriber’s nominee will receive the entire amount as lump sum. If there is no Nomination given, then the legal heir can claim the accumulated corpus. It is applicable for both Tier I and Tier II account.
10) What is an Annuity ?
Annuity is a form of insurance or contract aimed to generate a regular cash flow or income on Retirement. The subscriber need to buy an annuity after exiting of NPS, whether premature or attaining age of 60 years.
The Subscriber can also use 100 percent of accumulated wealth to buy an annuity.
In case of death of the NPS Subscriber, then the option will go to the nominee to receive 100 percent of the accumulated corpus or if there is no nominee, then the legal heir can claim it. For claiming the corpus, nominee or legal heir required the submit a form to Point of Presence (POP)
There are Annuity Service Providers (ASP) were available to provide a regular income like as pension to the NPS subscriber after exit of NPS account. These service providers are regulated insurance companies which are empanelled by PFRDA.
11) How my investment allocated on NPS account ?
Generally, NPS have three types of funds to its subscribers – Equities (E), Corporate Bonds (C), Govt. Securities (G). As per PFRDA norms, NPS system restricted the investment towards Equities (E) to 50 percent of Contribution amount. But, the subscribers have the option to invest up to 100 percent in Corporate Bonds and Govt. Securities. It is applicable for both Tier I and Tier II Account.
There are two investment choice available in NPS account – Active Choice and Auto Choice.
Under Active choice, where the subscriber have the flexibility to choose his /her own asset allocation on Equity, Bonds and Securities. But, for the Equity investment restricted to 50 percent of contribution amount.
Under Auto Choice, Investment option will be made depending upon the Subscriber’s age. You can refer the investment choice cycle on NSDL Website: https://www.npscra.nsdl.co.in
The Subscriber also have the option to switch between Active and Auto Choice, 2 Times in a financial year is permitted.
12) Is there any assured or guaranteed income / returns under my NPS Account ?
No, the returns or income are market based. It linked with the market sentiment and is designed for the long term Retirement benefit. Returns may vary depending upon the Asset allocation too.
13) Can I make any changes in my NPS account like Address, Nominee, Contact ?
Yes, the Subscriber can make changes in his account by submitting a request to the POP. Charges may apply.
14) How to view my contribution amount details or Statement ?
The Subscriber has two options available to view the contribution details as a statement – Offline and Online.
Offline – Subscriber can contact the POP and request for the physical Statement. Generally, the CRA will send the annual statement of your NPS account to the registered address.
Online – https://cra-nsdl.com/CRA/
By logging into the CRA-NSDL website, you can view the contribution amount and other statements. The User Id is your PRAN number and the password you had received to the registered address. In case you are not receiving any password or IPIN, you can click to forgot password and create a new password. If the Subscriber viewing as first time, he can use the IPIN for the credentials.
15) Where can I view my nearest POP ?
The Point of Presence (POP) are the service providers, helps to opening a NPS Account, Contributing to NPS, carrying and resolving Subscriber’s request and grievances.
Finding your nearest POP, You can view this link: https://npscra.nsdl.co.in/pop-sp.php
16) What are the Annuity Schemes currently available under NPS ?
Currently, there are few schemes available with the Annuity Service Providers (ASP) under NPS.
- Annuity for Life
- Annuity for Life with return of purchase price on death
- Annuity payable for life with 100 % Annuity payable to spouse on death of Annuitant.
- Annuity payable for life with 100% Annuity payable to spouse on death of annuitant with return on purchase of Annuity – On death of the annuitant, Annuity is paid to the spouse during life time and purchase price is returned to the nominee after the death of the spouse.
The pension amount can be calculated based on indicative annuity rates (subject to change from time to time) provided by ASPs. However, the actual annuity amount will depend on the prevailing rates at the time of purchase of annuity
You can view the Annuity Service Providers: https://npscra.nsdl.co.in/annuity-service-provider.php
17) In case of death of Subscriber after buying an Annuity Plan ?
Depending upon the selection of Annuity Plan by the Subscriber. If an Annuity plan is a Joint life, then the joint holder or spouse will get the annuity till his / her entire life. If the spouse predeceases the annuitant, payment of annuity will cease after the death of the annuitant and purchase price is paid to the nominee.
If a Subscriber opted – Annuity for Life with return of purchase price on death, then the purchase price or corpus will be returned to Nominee or Legal heir, but they will not get the annuity (Regular income). In case the subscriber had bought for joint life Annuity, then the annuity will be paid to the Joint holder or Spouse after the death of Subscriber.
18) Where can I track my PRAN Status ?
Tracking the dispatch status for your PRAN is available online. You can view the status of newly registered PRAN, re-issued PRAN number or Re-issued I-PIN / T-PIN, by go through this below link:
19) Where can I submit my Grievance / Inquiry regarding NPS account ?
NSDL provided online facility for grievance and inquiry on NPS account. You can view the below link to submit, track your grievance or inquiry.
Grievance Redressal Policy also available in this website. Anyone can also request and attend for NPS Awareness Program. ( NPS Awareness Programme)
20) Some Useful links for you:
- Central Government Employees – https://npscra.nsdl.co.in/central-faq.php
- State Government Employees – https://npscra.nsdl.co.in/state-faq.php
- Organized or Corporate Sector – https://npscra.nsdl.co.in/organised-sector-faq.php
- For all Citizens of India – https://npscra.nsdl.co.in/all-citizens-faq.php
You can download this article as PDF: 20 Common FAQs on NPS
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