Be financially independent post-retirement with National Pension Scheme (NPS)

Introduced by the Government of India, National Pension Scheme (NPS) is the solution to a secured life, post-retirement. This scheme functions as an investment and pension plan by providing income along with market-based returns which proves to be helpful, especially during old age. This national pension scheme was implemented on May 1, 2009, and individual subscribers are allotted with an exclusive Permanent Retirement Account Number (PRAN). 

NPS Eligibility Criteria

• You must be a resident Indian citizen
• You must be between the ages of 18 to 65 years

National Pension Scheme: An overview

National Pension Scheme (NPS) is a social security pension and investment scheme initiated by the Central Government. As a pension program, it is open to employees in the public, private and even the unorganized sector, in order to provide old age security to them. The scheme aims to create a long-term saving avenue by encouraging people to invest in a pension account regularly during the course of their employment. After retirement, the subscriber to the scheme receives a certain percentage of the corpus and the remaining account is diverted to an annuity scheme, which brings in a monthly pension for the post-retirement years. The Scheme is regulated by Pension Fund Regulatory and Development Authority (PFRDA). Each subscriber who joins the NPS is allotted a unique Permanent Retirement Account Number (PRAN) number. The PRAN remains the same throughout life.

Who can open an NPS Account?

The eligibility requirements for an NPS account with Bajaj Markets are simple:

You need to be a citizen of India (both resident and Non-resident are eligible) in the age group of 18-65 years (as on the date of submission of NPS application).

Additionally. You need to be KYC compliant and not have a pre-existing NPS account. Opening multiple accounts for an individual is not allowed under NPS.

Types of NPS Accounts

As a subscriber to the scheme, you have the option to open two types of NPS Accounts under the same Permanent Retirement Account Number (PRAN): Tier I and Tier II. Here’s a detailed look at them:

Tier I:

Minimum amount per contribution - Rs. 500

Minimum contribution per Financial Year - Rs. 1,000

Minimum number of contributions in a Financial Year – 1

You can decide on the frequency of your contributions throughout the year as per your convenience, but the minimum limits should be complied with.

Withdrawals are restricted and subject to terms and conditions.

Tier II:

Minimum amount per contribution - Rs. 250

No minimum balance required

Under Tier II, you are free to withdraw the entire accrued corpus at any point in time.

Investment Choices under NPS

Investors are also given the option to select the pattern of allocation for their investments.

Active Choice: This option gives you the freedom to design the portfolio among 3 asset classes:

• You can choose to invest up to 50% in equity, which is a high risk – high return option
• Under Corporate Bonds, funds are invested in fixed income bearing instruments which offer medium returns.
• Government Securities, which provide assured returns.

Auto Choice- Life Cycle Fund: With this option, the funds are invested in a pre-defined proportion depending on your age. The exposure to risk is higher at a younger age, so the investments are inclined towards equity. The exposure to risk progresses towards safe instruments with assured returns as the subscriber ages.

Tax benefits

There is a deduction of up to Rs. 1.5 lakhs to be claimed when you avail NPS with Bajaj Markets – for your contribution as well as for the contribution of the employer. Under Section 80CCD(1), a deduction is allowed on the self-contribution, up to a maximum deduction of 10% of the salary, but no more than the said limit of Rs 1.4 lakhs. If you are self-employed, this limit is 20% of the gross income.

This is because, for the salaried person, the employer’s contribution is also deductible to the extent of the lower of the two:

1. Actual NPS contribution by the employer
2. 10% of Basic + DA

On top of this, 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. In totality, therefore, you can claim a tax deduction of up to Rs 2 lakhs.

With online accessibility, you can access your NPS account anywhere. Even if you change jobs and/or move from one city to another, you can still manage/track their NPS.