What is NPS (National Pension System): Features, Benefits & Returns

NPS Asset Classes

Subscribers of NPS can choose to allocate their investment across 4 different asset classes. These 4 asset classes are as follows:

There are four asset classes in National Pension Scheme. Asset Class E has investments in equities such as equity stocks and equity derivatives. Asset Class C and G are pure debt investments. While Class C investments primarily in Corporate Bonds, Asset Class G primarily invests in Central and State Government Bonds. Asset Class A invests primarily in alternative assets like Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).

Choice of Pension Fund Managers in National Pension System

NPS allows investors to choose their NPS fund manager for NPS Tier 1 and Tier 2 accounts. Current list of PFRDA-approved fund managers for the NPS scheme include:

·         Aditya Birla Sun Life Pension Management

·         Axis Pension Fund Management Limited

·         HDFC Pension Management Co. Ltd

·         ICICI Prudential Pension Fund Management Co. Ltd.

·         Kotak Mahindra Pension Fund Ltd.

·         LIC Pension Fund Ltd.

·         Max Life Pension Fund Management Limited

·         SBI Pension Funds Pvt. Ltd

·         Tata Pension Management Ltd.

·         UTI Retirement Solutions Ltd.

NPS Investment Options: Active Choice & Auto Choice

Subscribers of the National Pension System also have the option of choosing the asset allocation across the 4 asset classes of Equity, Corporate Bonds, Government Bonds and Alternative Investments. For subscribers who want to do this asset allocation by themselves, the active choice option is more suitable while the auto choice option might be more suitable if an investor is unsure about what NPS investments to make. 

H3: Active Choice

As mentioned earlier, in active choice, the investor decides the split between different asset classes in active choice option. There is however some restriction with respect to equity allocation in NPS based on the age of the investor. The below table shows the Maximum Equity Allocation allowed under the active choice option:

H3: Auto Choice

The auto choice option of NPS allows investors to automatically change their asset allocation towards different asset classes based on the age and risk tolerance of the investor. Under the auto choice option, the investor can choose 1 of the 3 life cycle funds known as LC75 (Aggressive Life Cycle Fund), LC50 (Moderate Life Cycle Fund) and LC25 (Conservative Life Cycle Fund). Below are the asset allocation limits for these life cycle funds, where E is equity allocation, C is corporate bond allocation and G is Government bond allocation: 

As you can see from the above table, as the age of the subscriber increases, the equity allocation of the NPS portfolio is automatically decreased and moved into potentially lower volatility asset classes like corporate debt and Government securities. This is designed to decrease the potential risk in the investor’s portfolio as one gets closer to retirement.   

What are the Features & Benefits of the National Pension System (NPS)

1. Earn High Returns with NPS

NPS does offer returns significantly higher than other conventional tax-saving investments, such as the PPF etc. With NPS scheme, you can earn annualised returns of 8% to 10%. NPS returns are not fixed and vary as funds in National Pension Scheme are market linked.

2. Assess your Risk

There is currently a limit on equity exposure for the National Pension System (NPS) that ranges between 50% to 75%. This limit is 50% for government employees. Every year, beginning from the year the investor turns 50 years of age, the equity component will decrease by 2.5% within the specified range.

Nevertheless, the cap is set at 50% for an investor of 60 years of age and above. It stabilizes the risk-return equation for investors' interests, ensuring the portfolio is somewhat free from the fluctuations of the equity market.

3. NPS Tax Benefits

Investment made to NPS scheme is allowed a deduction up to Rs.1.5 lakh for your contribution as well as for the employer's contribution.

80CCD (1) includes self-contribution, which is part of investment under Section 80C. The overall deduction in the investment under 80CCD (1) is 10% of the wage, but not more than that. This cap is 20 percent of gross income for the self-employed taxpayer.

80CCD (2) protects the employer's NPS contribution, which does not form part of Section 80C. This provision does not apply to self-employed taxpayers. The maximum amount eligible to be deducted shall be the lowest of the following: a. Actual NPS contribution by employer b. 10% of Basic + DA c. Gross total income

You can claim other self-contribution (up to Rs.50,000) of investment under section 80CCD(1B) to get NPS tax benefit, which makes it one of the best investment plans having a tax deduction of up to Rs.2 lakh in total.

Also Read: Best Long Term Tax Saving Investments under Section 80C

Tax Benefits of National Pension System

There are different NPS tax benefits that investors can consider. Below are a few key tax saving benefits investors should consider:

1.     NPS investments allow you to claim up to Rs 1.5 lakh under Section 80C of Income Tax.

2.     One can also claim incremental tax benefits on investments up to Rs 50,000 under (1b) subsection of Section 80CCD of the Income Tax Act. This is over and above the limit of Rs 1.5 lakh u/s 80C.

Subscriber of corporate and government NPS option get additional tax savings beyond 80CCD(1b) and 80C tax benefits on contribution made by their employer. As per current NPS rules, the limit is up to 12% of basic salary for central/state government NPS account holder and 10% for corporate NPS subscribers.  

How to Open NPS Account?

1. Offline Process

You can open an account in NPS Scheme. You'll need first to find a PoP-Point of Presence (it might be a bank too). Download and send a subscriber form from your nearest PoP along with the KYC paperwork. Ignore whether that bank even complies with KYC.

The PoP will give you a PRAN–Permanent Retirement Account Number after you make the initial investment (no less than Rs. 500 or Rs. 250 monthly or Rs. 1,000 annually). This number and password will help you run your account in your sealed welcome box. This procedure has a one-time registration fee of Rs.125.

2. Online Process

You can also open an account in NPS Scheme online. It's easy to open an online account (enps.nsdl.com) if you connect your account to your PAN, Aadhaar and mobile number. The NPS registration can be checked using the OTP sent to your mobile phone. It will create a PRAN (Permanent Retirement Account Number) that can be used for NPS login.

How to do NPS Registration?

For NPS online registration, you need to click here and follow the steps mentioned below:

1. New NPS Registration

The above screenshot is for the new NPS registration online portal. First, choose the appropriate options from the choices given below:

• Applicant Type (Individual Subscriber or Corporate Subscriber)
• Status of Applicant (Citizens of India or Non-Resident of India)
• Register with (Permanent Account Number)
• Account Type (Tier I & Tier II or Tier I only)
• Bank/ POP

Then, click on continue to proceed with the NPS registration completion.

2. Complete Pending NPS Registration

The above screenshot is to complete the pending NPS registration. You’ll have to fill your Acknowledgement No, Acknowledgement Data, First Name, Date of Birth and Email Address. Select submit to continue.

3. eSign/ Print Registration Form

How to Do NPS Login?

There are two portals through which you can do NPS login.

NSDL NPS Portal

You can sign in to the NSDL NPS server in two ways. First, if you have a password already. Another way is that if you have not created a password and are first signing into your PRAN account.

Here are the steps that you need to follow if you already have a password.
 

1. Go to the NSDL NPS portal npscra.nsdl.co.in for the NPS login

2. Click on the' Open or Add your NPS account ' button

3. Next, you’ll see a button saying, 'Log in with PRAN/IPIN’ [3], click on it

4. Enter your PRAN and password on the login screen, followed by 'Submit' for gaining access to your E-NPS account^[1]. You'll need to create a password using the steps outlined below when you log in for the first time

• Go the official portal of NSDL NPS (npscra.nsdl.co.in)
• Click on 'Open your NPS account or contribute online'
• Click next on, 'Log in with PRAN/IPIN'
• Select ' eNPS password’ to create a new password
• Fill in your date of birth. Type the new password and then verify it. After entering the captcha and hit 'Submit'
• You’ll receive an OTP on your mobile phone. There will be an empty field reading' Access OTP,' and you'll need to key in the OTP to validate your new password

5. You can now access your E-NPS account with the PRAN and the new password

Karvy NPS Portal

1. Go to the official Karvy NPS portal

2. Select “Login for existing subscribers”

3. To log in to your E-NPS account, type your PRAN and Password on the login screen

4. Follow the below steps to generate a new password

• Click on the link “Click here to generate password” on the login screen
• Enter your PRAN, date of birth and captcha. Once you click on submit, you will receive an OTP on your registered mobile number
• The OTP will help you to set the new password
• You can now login to your E-NPS account with this password

What are the Different Forms under the National Pension Scheme (NPS)?

national pension scheme is a contribution-based retirement plan governed by pfrda and funded by the indian government. registration for the national pension scheme is necessary for various nps forms. here we have mentioned that exhaustive list of nps forms below. you can download nps forms below:
 

1. Form CSRF: Subscriber Registration Form

2. Annexure I: Tier II Details

3. Annexure-II: Additional Request Details

4. Annexure III: Additional Nomination Details

5. Form NSRF: Subscriber Registration Form-NRI

6. Subscriber Registration Form NSRF Annexure I

7. Subscriber Registration Form NSRF Annexure-II

8. S10-Subscriber Registration Form Tier-II

9. Press Release by Pension Fund Regulatory & Development Authority (PFRDA)

Charges for Investing in National Pension System

Since NPS funds are managed by a designated fund manager, the subscriber needs to pay a few fees and charges related to account opening, maintenance, transaction fees, etc. The following table lists the different charges related to NPS:

How does NPS scheme Compare Against other Tax Saving Instruments

additional common tax-saving investments under section 80c, apart from the nps are equity linked savings scheme (elss), public provident fund (ppf), and fixed deposits (fd). now that you know what is nps and how it works, here's a quick comparison between other tax saving investments and nps:

*Rate of Interest mentioned are just for reference and can vary from time to time. Rate of interest mentioned for the above investments can change without prior information.

NPS scheme can get higher returns than the PPF or FDs, but at maturity, it is not as tax efficient. For example, you can withdraw from your NPS account up to 60 percent of your accumulated amount. Taxability on exclusion from the NPS is subject to change.

NPS v/s Atal Pension Yojana

Check the difference between National Pension System and Atal Pension Yojana below:

NPS v/s Voluntary Pension Fund (VPF)

There are critical differences between NPS and Voluntary Pension Fund (VPF) that are listed here:

1. NPS covers the persons who are in the unorganized sector, whereas Voluntary Pension Fund (VPS) only covers the organized sector employees.

2. NPS provides options of equity, corporate debt and government bond while VPF works mostly as a debt instrument, with an upper capping of 15% on equity allocation.

3. The amount of investment is different. For NPS, an employee's annual contribution of Rs. 6000 is the minimum prerequisite, while in VPF, an employee is expected to pay 12 percent of the salary to the fund.

4. In the case of VPF, the Central Board of Trustees of the Workers Provident Fund Association (EPFO) determines the annual interest rate to be paid every year (currently 8.65%), whereas NPS is a market-linked product.

5. Tax benefits vary for the schemes. As per section 80C, the investment pool, as well as the interest in VPF, are eligible for an income tax deduction of up to Rs. 1.5 Lakh. It varies though in the case of NPS. A deduction under section 80 C of up to Rs. 1.5 Lakh is permissible.

FAQs on National Pension Scheme

1. Are NPS returns taxable?

On lumpsum withdrawal after the age of 60 years, up to 40% withdrawal in lumpsum of the total corpus is fully exempt from tax.

2. Is it worth to invest in NPS?

Yes, NPS is one of the worthy choices to build a retirement corpus. It is because it qualifies for the standard tax-saving space under Section 80C of Rs.1.5 lakh. And, an additional Rs.50000 under Section 80CCD (1B) is also exclusive for an NPS investment.

3. Who can open the NPS account?

Both the residents of India, as well as the Non-residential Indians (NRIs), can open an NPS account.

4. Is NPS voluntary? 

Yes, the National Pension System (NPS) is a voluntary pension scheme managed and governed by the Regulatory and Development Authority of the Pension Fund (PFRDA), established by a Parliament of India act.

5. How can I deduct NPS in ITR?

There is a deduction for NPS of up to Rs.1.5 lakh for your payment as well as for the employer's contribution. –80CCD (1B) is self-contribution, a member of Section 80C.

Sources:

[1]https://www.coverfox.com/personal-finance/saving-schemes/nps-login-registration/

[2] https://economictimes.indiatimes.com/mf/nps-national-pension-scheme

[3] https://cleartax.in/s/nps-login

[4] https://www.bankbazaar.com/saving-schemes/nps-vs-apy.html

ARN:- Sep/Bg/28P