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Everything To Know About National Pension System (NPS) Scheme

Are you planning your retirement? Read about the NPS scheme, benefits and investment plans.
  • Krati Purwar
  • Editorial
Published -25 Jun 2022, 10:33 ISTUpdated -25 Jun 2022, 10:45 IST
national pension scheme

The National Pension System (NPS) is among the lowest-cost retirement investment options that give the monthly payout to applicants. Women looking to plan their retirement can start with this scheme.

It was established by the Government of India so that a stable monthly income of the subscriber can be maintained post-retirement. Pension Fund Regulatory and Development Authority (PFRDA) is the governing committee of this scheme.

What Is The NPS Scheme?

Under the scheme, the eligible applicants invest a certain amount every month. Profession fund managers of PFRDA manage the saving pool. The investment grows over time and accumulates in the pool. The growth depends on the returns earned on the total amount.

During the time of exit from the NPS scheme, the applicant can use a part of the fund to buy a life annuity from a PFRDA empanelled Life Insurance Company. This is not a compulsion but a choice that a subscriber can make.

Eligibility Criteria Under NPS Scheme

retirement planning

  • Subscribers applying under the NPS scheme must be a citizen of India (resident or non-resident).
  • Applicants must fall between the age group of 18 and 60 on the date of submission of the application.
  • A registered member must comply with the Know Your Customer (KYC) norms that are written in the Subscriber Registration Form. 
  • Applicants must submit all the documents mentioned in the KYC form.

Benefits Of Investing In The NPS Scheme

Simple Process - Opening an account under the scheme is a hassle-free process, and the subscriber gets a Permanent Retirement Account Number (PRAN). An applicant can open either a Tier I account (non-withdrawable permanent account) or a Tier II account (voluntarily withdrawable account).

Well Monitored - PFRDA managers monitor the investment pool and provide performance reviews. According to the website of the NPS Trust organisation, the maintenance cost of accounts under the scheme is the lowest. 

Flexible Investment Funds - Under the NPS scheme, there are various choices for Pension Funds (PFs) available for the applicants. They can monitor the growth, regularise investment and switch from one option to another.

Power Of Compounding - The wealth accumulation under the scheme grows with a compounding effect. Since the maintenance charges are low, the pension amount grows over time.

Portable - The NPS Scheme offers hassle-free portability arrangements to the applicants switching jobs or shifting locations. Subscribers can also manage the account online.

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Tax Benefits Under The NPS Scheme

retirement plan

Applicants can claim tax benefits under the NPS scheme. If a subscriber has made a long-term investment, the maximum tax deduction under Section 80C, 80CCD(1) and 80CCD(2) is ₹1.5 lakh. One can also claim the additional benefit of ₹50,000 under Section 80CCD(1B).

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What Is The Minimum Amount To Invest In The NPS?

If the applicant chooses to invest in Tier I of the scheme, the minimum contribution starts at ₹500 at the time of registration. The minimum amount for contribution for a year is ₹1,000. It has no maximum cap on the annual contribution.

For Tier II, the contribution at the time of registration starts at ₹1,000. There is no minimum or maximum cap on the annual contribution. 

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