- What is NPS?
National Pension System (NPS) is an investment cum pension scheme initiated by the Government of India to provide old age security and pension of all citizen of India. The NPS was rolled out for all citizens of India on May 01, 2009. The Scheme is regulated by Pension Fund Regulatory and Development Authority (PFRDA)
- Who can subscribe to NPS?
A citizen of India, whether resident or non – resident can join the NPS subject to the following conditions:
- Subscriber should be between 18 – 65 years of age as on the date of submission of her application
- Subscriber should comply with the prescribed Know Your Customer (KYC) norms as detailed in the Subscriber Registration Form for NPS
- How does the Scheme work?
The scheme is based on a unique Permanent Retirement Account Number (PRAN), which is allotted to each Subscriber upon joining. Subscriber contributes towards NPS (directly or through the employer she is working with) during her working life. On retirement or exit from the scheme, the Corpus is made available to her with the mandate that some portion of the Corpus must be invested into Annuity to provide a monthly pension post retirement or exit from the scheme
- What are different types of NPS Account?
Under NPS, Subscriber gets the option to open two accounts. A Tier I account is mandatory to open in order to join NPS. 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. All investments for tax savings happens in this account only.
- Withdrawal from this account restricted
- Minimum annual contribution required for this account is Rs.1,000
- It is known as investment account
- Withdrawal from this account can be done at any point of time as per Subscriber’s need
- What are entry and exit age under NPS?
|Entry Age||18 years||65 years
|Exit Age fter 10 years of Account opening||70 Years
- Can a Subscriber open more than one NPS account?
No. In the entire life span, Subscriber will be allowed to open only one NPS Account. The NPS Account number, which is also called PRAN, is fully portable across job and geography
- Is there any restriction on the frequency of contribution?
There is no restriction in terms of frequency of contribution. The subscriber has the option to make the contribution in any mode – monthly, quarterly, half-yearly or yearly. Subscriber can make ad – hoc contribution as well
- Can Subscriber increase or decrease the contribution amount in subsequent years?
Yes, NPS offers this flexibility. Subscribers are allowed to alter the contribution amount as per the suitability. However, this is restricted to the Subscriber’s own contribution. For Employer’s contribution, this flexibility depends on the Employer’s policy
- Does Subscriber get any alert on credit of contribution amount to his / her NPS accounts?
Yes, once the contribution is credited to Subscriber’s NPS account, an email alert as well as a SMS alert is sent to the registered email ID and mobile number of the Subscriber
- What happens if the minimum annual contribution of Rs.1000 is not invested in Tier – I NPS Account?
In case the Subscriber fails to contribute minimum Rs.1000 per annum in Tier – I NPS Account, the PRAN is frozen. Once the PRAN is frozen, Subscriber is not allowed to do any transaction (financial / non – financial) in both – Tier – I and Tier – II NPS Accounts
- What is the process of unfreezing the PRAN?
Subscriber needs to contribute minimum Rs.500 through portal to unfreeze the NPS Account
- How the funds going to be invested under Subscriber’s NPS account?
NPS offers 4 funds to Subscribers
- Equity (E)
- Corporate Bonds (C)
- Government Securities (G)
- Alternate Investment Funds (A)
NPS restricts investment towards Equity and Alternate Investment Funds to 75% and 5 % of contribution amount respectively for both Tier I and Tier II NPS Accounts. However, Subscriber can invest up to 100% in Corporate Bonds or Government Securities Fund. Investment across three funds will be managed by HDFC Pension Management Company Limited
- How does the investment happen across three funds under Auto choice?
Investment across 3 funds will be done in a life cycle fund. Under this option, investment across Equity, Corporate Bonds and Government Securities is done as per the age of the Subscriber in below three life cycle funds:
- LC- 75 Aggressive Life cycle Funds
- LC- 50 Moderate Life cycle Funds
- LC- 25 Conservative Life cycle Funds
Illustration of LC – 50 Moderate Life Cycle Funds is state as per below chart:
Age of the Subscriber Equity Corporate Bonds
- < = 35 Yrs 50% 30% 20% 36 48% 29% 23% 37 46% 28% 26% 38 44% 27% 29% 39 42% 26% 32% 40 40% 25% 35% 41 38% 24% 38% 42 36% 23% 41% 43 34% 22% 44% 44 32% 21% 47% 45 30% 20% 50% 46 28% 19% 53% 47 26% 18% 56% 48 24% 17% 59% 49 22% 16% 62% 50 20% 15% 65% 51 18% 14% 68% 52 16% 13% 71% 53 14% 12% 74% 54 12% 11% 77%
- > = 55 Yrs 10% 10% 80%
- How the above fund allocation chart works under Auto Choice Investment option?
The first allocation is made as per the age of the Subscriber at the time of joining the Scheme as shown in the chart. For example, if the entry age of Subscriber is 42 years, her allocation towards E, C and G would be 36%, 23%, and 41% respectively. On the next date of birth of the Subscriber, the portfolio will be re-aligned as per the next level chart i.e. for the age 43. The realignment of a portfolio is system driven
- What are the tax benefits available to Subscribers for contribution under the corporate model?
Under NPS corporate model, Subscriber gets the following tax benefits on contributions
Tax Benefit on investment Tax Treatment on exit
- • Investment up to 10% of Salary (Basic + Dearness Allowance) routed through the Employer, is deductible from taxable income u/s 80CCD (2) of Income Tax Act, 1961 which is over and above Rs. 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
- Amount withdrawn in lump sum is exempt from tax to the extent of 40%* of total Corpus
- Amount invested in Annuity is fully exempt from tax
- Balance amount if invested in to Annuity is exempt from tax. If the amount is withdrawn, it will be taxable in the hands of Subscriber
- Pension received out of investment in Annuity is treated as income and will be taxed appropriately
- No tax benefit Capital gain tax will be applicable
Note: *As per the recent announcement by Finance Ministry, the entire corpus withdrawal in lump sum i.e. 60% would be made Tax Free from the commencement of next F.Y (F.Y. 19-20)
15. What are the charges under NPS and how these charges are levied?
There are various intermediaries involved under NPS. The charge for these intermediaries is regulated by PFRDA. Below are the details of charges under NPS (exclusive of GST)
Intermediary Charge Head Charge# Mode Deduction of POP
Registration Charge Rs.200 To be collected up Contribution Processing Charge* 0.25%
front / deducted Non – Financial Transaction Processing Charge Rs.20
from contribution amount Persistency Charge# Rs.50 Account Opening Charge CRA (NSDL)
Transaction Processing Charge Annual Maintenance Charge Rs.40
Through cancellation of Units
Account Opening Charge CRA (Karvy)
Transaction Processing Charge Rs.39.36
at the end of the Calendar Quarter
Annual Maintenance Charge Rs.57.63 PFM Fund Management Charge Custodian Security Deposit Charge NPS Trust** Trust Management Charge 0.01% 0.0032%
Through deduction NAV
*subject to minimum Rs.20 and maximum Rs.25000 per PRAN per Transaction
**GST is not applicable on Trust Management Charge
#Applicable on Retail active accounts after first financial year
- Does Subscriber need to pay POP charges over and above the contribution amount?
No, the POP charges would be deducted from the Contribution amount
- What is meant by Non – Financial Transaction?
Transactions like change of address, nominee details, Intersector shifting, etc are called non – financial transactions
- How is the Non – Financial Transaction Charge recovered by POP?
Subscriber needs to pay Service charge of Rs.20 + GST by Cheque at the time of submitting request for processing any non – Financial transaction
- Does Subscriber need to open a new NPS account if she is already having one?
No, Subscriber does not need to open a new NPS account. Subscriber will need to shift the existing account to Corporate NPS account by submitting Inter Sector Shifting (ISS – 1) form along with Service Charge of Rs. 20 + GST to POP representative along with self-attested copy of PRAN Card
- Can a Subscriber change / modify data in the NPS system after joining NPS?
Yes. Subscriber needs to submit the request along with the Service Charge of Rs. 20 plus GST as applicable to POP-SP representative for initiating the modification
- Can a Subscriber request for a duplicate PRAN Card?
Yes. In case of loss or damage of PRAN Card, the Subscriber needs to submit a duly filled S2 form to the POP for issuance of duplicate PRAN Card. Rs.40 plus applicable GST will be deducted by CRA for issuing duplicate PRAN
- Does Subscriber get any physical statement for NPS account?
Yes, an annual statement containing details of the unit holdings is issued by CRA to Subscriber’s registered address within 3 months of the end of every financial year
- Is partial withdrawal allowed from Tier I NPS Account?
Yes. Subscriber can withdraw up to 25% of contributed amount towards Tier – I NPS Account after 3 years of NPS account opening. Additionally, Subscriber is allowed to withdraw from Tier I NPS account twice in the entire tenure of NPS account hold
- What are the conditions of partial withdrawal?
Withdrawal from Tier – I NPS account would be permitted for specific purposes like Child’s marriage, higher education, buying home, treatment of critical illnesses etc.
- When can a Subscriber exit from NPS?
Subscriber can exit from NPS after 10 years or attainment of superannuation age (retirement age) defined by the corporate whichever is earlier
- How the payout happens if a Subscriber exists from NPS?
Primary objective of Tier – I NPS Account is to create a Corpus, which can be used at the time of retirement to buy pension for the Subscriber / Nominee. Hence, there is a restriction imposed on lump sum amount accessible to Subscriber on exit as mentioned below:
Exit before Superannuation age defined by the Corporate
Exit at Retirement age defined by the Corporate
- Up to 20% 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
- 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.2 lakhs, there is no need to invest into Annuity. Entire amount can be withdrawn in lump sum
- Is it mandatory to withdraw the amount immediately at the time of exit from NPS?
In case of exit from NPS on retirement age defined by the Corporate, Subscriber can defer the withdrawal option till 10 years depending on the market condition. Subscriber can withdraw this amount either in lump sum or take the same in a phased manner with maximum 10 installments before attaining the age of 70 years.
However, in case of pre – mature exit from NPS (before attaining the age of 60 years), Subscriber does not have the deferment option
- What happens to the funds if Subscriber opts to defer the withdrawal (after the
retirement age defined by the Corporate)
The fund would continue to remain invested. The Pension Fund Manager, Scheme Preference and Asset Allocation Pattern will remain the same as they were at the time of vesting
- In case the Subscriber opted for withdrawal from Tier – I NPS Account before the age60, at what age annuity will start?
In case of pre-mature withdrawal, Subscriber needs to invest in Annuity immediately. Depending on the Annuity Plan he / she has invested in, annuity would start