in Finance, India, Investment

National Pension System (NPS)

PFRDA (Pension Fund Regulatory and Development Authority), India has opened National Pension System (NPS) / New Pension Scheme to all Indian citizens starting today, on 1st May, 2009.

Its a safe, flexible and portable scheme introduced by Indian Government’s cell PFRDA; to replace the existing System of Pension System in the country and to provide income security after retirement.

PFRDA was established by the Government of India to promote old age income security by establishing, developing and regulating pension funds, to protect the interests of subscribers to schemes of pension funds.

National Pension System (NPS) Highlights

Any Indian citizen will be able to start a National Pension System account and can start investing any amount up for a pension.

  • Open to all citizens aged between 18-60 years
  • Exit age for national pension system will be 60 years.
  • Attractive investment schemes to choose from
  • Professional record-keeping and fund management
  • Technology driven, Transparent fee based system
  • Withdrawal facility as and when you wish, under Tier II
  • No entry and exit loads
  • Multiple fund managers
  • Multiple investment options
  • Minimum Contribution per installment: Rs 500
  • Minimum Contribution per year: Rs 6000
  • Minimum Contributions per year : 1

Under this scheme, an investor can deposit their contributions in Bank Branches and Post offices all over the country. Unlike EPF (employee provident fund schemes), there will be only one number allotted to each investor, In case of change of job or location of job, it can be easily transferred to another branch. Each Investor will be allotted a unique 16 digit Permanent Retirement Account Number (PRAN) it will valid for life like current PAN number. There will be no need to open a new account every time you change job or location unlike the current EPF (Employee Provident Fund)

In starting, there will be 23 Points of Presence (POP) including PSU banks and post offices, and they will be provide account opening and other transactions facility. Following is the participating POP list: Allahabad Bank, Axis Bank, Bajaj Allianz General Insurance Co, Central Bank of India, Citibank, CAMS (Computer Age Management Services), ICICI Bank, IDBI Bank, IL&FS Securities, Kotak Mahindra Bank, LIC (Life Insurance Corporation of India), Oriental Bank of Commerce, Reliance Capital, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, SBI (State Bank of India), State Bank of Indore, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore, South Indian Bank, Union Bank of India, UTI.

There will be multiple choices of investment and pension fund managers. All records will be kept by Central Record-keeping Agency (CRA). Central authorities and fund manager will be providing performance reports and NAVs (Net Asset value) regularly, so investor can track and invest accordingly. In Starting, NAVs will be declared once every year and switching fund manager will be allowed only once a year.

Currently seven fund managers have been chosen LIC Pension Fund Limited, SBI Pension Funds Private LimitedIDFC Pension Fund Management Company LimitedKotak Mahindra Pension Fund LimitedReliance Capital Pension Fund LimitedUTI Retirement Solutions Limited and ICICI Pension Fund Management Company Limited that will manage investment money for NPS.

Fund Managers will charge very low fund management charges as compared to mutual funds.

Investment Options:

Individual will also have choice to choose from 3 different asset classes: equity (E type), Govt securities(G Type) and Credit Risk-bearing Debt/fixed income based investments (C Type).

Active Choice investment: Investor can mix these three types also as per his choice. Invester actively decide as to how NPS investment is divided into 3 options (E, C and G).

Auto Choice investment: Another option will be Auto Choice life cycle fund and the investment allocation will be done based of investor’s age. In this scheme, equity portion (Asset class E) will be 50 per cent till age 35 after which it will reduce 2 per cent per year until it becomes 10% by age 55. Credit risk portion (Asset class C) will be 30 per cent till age 35 after which it will reduce 1 per cent per year until it becomes 10% by age 55.

Investor will have option of investing monthly/quarterly, but minimum 4 investments in a year will be compulsory.

As per the notification by PFRDA, Currently only half of investment can go into equities, even if investor chooses the equities type funds. This limit will only be reviewed after a year. Deepak Parekh had suggested PFRDA to allow public to invest all saving in equities but board was not ready to do that.

There will be regular account statements and information desks to keep information transparent.

Govt has extended Swavalamban initiative under which it will contribute 1,000 Rs per year (for a period of four years) to every national pension system (NPS) account opened this year with at least a matching contribution from the subscriber.

How to make investment in NPS

Biggest problem is investment is that, a person has to visit personally to POP office every-time he/she need to make contribution.   There has been some respite to investors as some of the POPs have started taking deposits online.

India’s largest bank State Bank of India has started taking NPS contribution online through the onlineSBI login account. If you have internet banking of SBI, you can make payment to NPS online. You can check NPS contribution section under Payments/Transfers tab after login.

If you have NPS account opened with ICICI and you also have bank account with ICICI, you can also transfer amount online to NPS account. You need to add NPS account as biller in online ICICI account. You can go to ‘Bill Pay’ section and add a biller under Pension category. Once biller is added you can make payment to this account.  The facility for online contribution payment towards national pension system (NPS) is allowed only for NPS accounts opened through ICICI Bank. Your registration for NPS contribution will be cancelled if the NPS account has not been opened through ICICI Bank. Any payments made towards such account will be reversed within three working days. Please make contribution towards the above NPS account only after you have received confirmation for registration into the mail box of your Internet Banking account.

NPS account holders can also invest through SIP or in lump-sum from their ICICI securities account (demat and online share trading account). But as this account is held by limited Indians, its of not much help.

CAMS service for online NPS payment has not started yet and page on their site shows under construction.For Govt Employees:

All new government employees (central and state) will no longer have GPF accounts and NPS account will be mandatory for them. So all who have joined government services after 1st Jan, 2004, will have NPS account.
NPS will work on defined contribution basis and will have two parts – Part I and Part II.

Tier IMandatory non-with-drawable Pension Account – Monthly contribution will be 10 percent of basic salary and equal amount will be deposited by Govt. This amount will be kept in a non withdrawal Pension Tier I account.
Tier IIVoluntary with-drawable Savings Account – It will be voluntary tier-II with-drawable account from which individual can withdraw money anytime without giving reason. There will not be any contribution from Govt. side in this account.

Govt Employee can exit after age of 60 years from Tier I Scheme and it will be mandatory for him to invest 40% of pension amount to purchase an annuity through a Life Insurance Company, It will provide pension for the life time. In case of employee wants to leave NPS before age of 60, the mandatory annuity will be 80 per cent of the pension amount.

Charges:

For account opening and issuance of PRAN : 50 Rupees
Annual maintenance charge: 350 280 Rupees per year
Initial subscriber registration charge: 100 Rupees
Transaction charges and contribution upload– 0.25% of the amount, subscribed by the NPS subscriber, subject to minimum of Rs.20 and a maximum of Rs. 25000.
Fund management charge: 0.0009% per year on the fund value.
Fund switch charges: 20 Rupees.
Any other transaction not involving a contribution from subscriber – Rs 20

As of now, this charge appears to be high. Considering 12 transaction a year (one every month), investor has to pay 470 Rs a year. That’s on higher side. These charges will reduce in coming years, as number of subscriber increases.
PFRDA may ask Government to partly pay the maintenance cost to reduce overall cost for investor.

Income tax treatment:

The bad part about NPS is that the returns will be fully taxable not like EPF and PPF. It will come under exempt-exempt-taxed (EET) regime, the amount would be taxed at the time of withdrawal. NPS will not attract any Security Transaction Tax (STT) and Dividend Distribution Tax (DDT).
However PFRDA has suggested government to exempt scheme from tax, but that decision will only be taken by new government.

Update: As per new notification by Finance ministry, under Direct Tax Code (DTC), NPS will also come under EEE and withdrawal will also be non-taxable from 2011. So national pension system could become the best long-term savings option.

From April 1, 2011. Employer contribution from employer towards NPS will not be included in the Section 80 C deductions (Like what happens in case EPF currently). So if employer contributes 50,000 to your account and you contributes same amount, Your 50000 will be available for exemption under 80-C and there won’t be any income tax on rest 50,000 deposited by employer. This increasing your overall deduction claim.

Where to apply for NPS

NPS is available at selected Service Provider (SP) branches of various Point(s) of Presence, Click on link for each POP for branches address. You may also view list by state-city on this link: POP/POP-SP location details.

For more information, application form & offer document, walk into your nearest Service Provider branch of the above-mentioned Point(s) of Presence.

Application Forms

  1.   NPS (New Pension Scheme/System) - Application Form (456.0 KiB, 19,152 hits)

  2.   New Pension Scheme/System (NPS) - Offer Document (2.9 MiB, 13,962 hits)

  3.   New Pension System (NPS) - Welcome Kit (1.2 MiB, 9,157 hits)

  4.   NPS (New Pension Scheme) - Investment Guidelines (73.8 KiB, 10,427 hits)

  5.   New Pension System (NPS) Contribution Instruction Slip (NCIS) (15.1 KiB, 8,364 hits)

  6.   NPS Scheme Preference Change/Switch form (26.9 KiB, 3,212 hits)

  7.   Swavalamban Yojana Declaration Form (139.7 KiB, 3,448 hits)

  8.   Subscriber request form to change Point of Presence (POP) (63.3 KiB, 3,283 hits)

  9.   Subscriber request form to change POP-SP (16.4 KiB, 3,264 hits)

  10.   UOS-S12 Withdrawal form for Tier II account under NPS (47.0 KiB, 3,060 hits)

  11.   Request form for change in signature and/or change in photograph (12.8 KiB, 2,851 hits)

  12.   Request For Change/Correction in Subscriber Master details And/Or Reissue of I-Pin/T-Pin/PRAN Card (402.9 KiB, 3,166 hits)

  13.   Request for Activation of Tier-II account under New Pension System (NPS) (215.3 KiB, 3,613 hits)

  14.   S1 - Subscriber Registration form to get PRAN (61.3 KiB, 3,367 hits)

Launch Notification:

national pension system NPS

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793 Comments

  1. My wife is a psu employee with BOB, in the entire year 28988 has been deducted from her salary pertaining to NPS now when i file the return using ITR2 where do i have to put this figure i mean under section 80CCCD i have to put in employers contribution or empolyees contribution or both of them as the computation of tax varies differernetly

    28988 is NPS contribution and 76084 is PPF and LIC contribution together

    If i put under employees contribution the tax deduction amount comes to 105072 and system calculated is 100000 where as
    If i put under employeers contirbution the tax deduction amount comes to 105072 and system calcualated is also 105072
    If i put under both head for employees as well as employeers contribution the amount comes to 134060 and system calculated is 128988.

    Under 80CCD which head should i Put NPS payments i mean under employees contri or employeers contri or both… The details of NPS are not provided in the salary certificate.
    thank you in advanced

    • @Theniral
      You must get breakup of employer and employee contribution in NPS from your employer.
      There are two different sections for NPS contribution in ITR form. Employee contribution is allowed for deduction under 1 lakh limit only, whereas employer contribution deduction can go this 1 lakh 80C/80CCD deduction subject to maximum 10% of basic salary.

      You may also check in your NPS login to see how much total contribution is there in your NPS account in the year. Most probably employer and employee contribution would be equal and hence you can put half amount in each employer and employee category.

  2. 1. Under 80CCD, put Employers NPS contribution of Rs 28988
    2. Under Sec 80C, Put all other cont like PF, PPF, Insurance Premium, etc = Rs76084

  3. The scheme seems to be very good. However, if hypothetically if a person at the age of 35 invests the amount for say 25 years and after attaining the age of 60 the person starts getting the pension, but unfortunately the person does not survives then what happens to the accumulated amount invested by the person. Does the remaining accumulated fund with interests goes to the beneficiary or it gets forfeited?

  4. Hi,

    I am a Govt employee. I have a valid Tier-I and Tier-II account. Recently i opened TIER-II acacount. I am transferring RS 1000 every month to my TIER-II account from Online SBI. There is a transaction charge of RS 20 and service charge of Rs 2.

    For every transcation Rs 22 is debting from my account. Is there any other way I can transfer amount to my TIER-II account to avoid Rs 20 loss every month. (Can i go for Standard Instructions or really is there any other choice?)

    Kindly reply me the all possible ways to avoid loss.

    Regards,
    Varun Kumar.

  5. I am a NPS subscriber once i lost my I/T code and then I got it from NPS office Mumbai now again i lost it and again i apply for that but still i don’t get it. How can I get it please explain it

  6. sir, i am working state gov and my new job central gov but i am join proper chanal. please ans me what change any diffcult pran no.

  7. Right now am investing in NPS account thru ICICI by handing over cheque to them on a monthly basis. Can i convert this deposit mode from cheque to Online. please advise.

    • @Phani
      I think you can have your NPS account linked with your ICICI bank account in case your POP-SP is ICICI bank only. If that’s done you can transfer amount online.
      Also, instead of monthly cheque, you can opt for ECS facility also.
      If you have SBI account, you can also transfer amount from online SBI to your NPS account too.

    • @Phani
      You need to add NPS account as biller in online ICICI account. You can go to ‘Bill Pay’ section and add a biller under Pension category. Once biller is added you can make payment to this account.
      The facility for online contribution payment towards New Pension System (NPS) is allowed only for NPS accounts opened through ICICI Bank. Your registration for NPS contribution will be cancelled if the NPS account has not been opened through ICICI Bank. Any payments made towards such account will be reversed within three working days. Please make contribution towards the above NPS account only after you have received confirmation for registration into the mail box of your Internet Banking account.

  8. i am having pvt ltd hospital and myself and wife both are working in capacity of directors.can our nps contribution be given by company and how much.we are 40 yr of age.kindly suggest

  9. I m a state gov. emp. & have a pran with tire-I account can i create a new tire-II account. i have sbi account with internet banking. at the time of appointment i have the index number alloted by pension director lucknow but now i have pran alloted by nsdl so pls tell me what would be done with the amount deposited in index number whether it would be transferred to nsdl account by treasury challan or paid cash to the subscriber

  10. sir, my friend open nps acount through sbi shillong Meghalaya.since last 3 month he could not deposit his monthly contribution as system of bank was out of order,so pl. suggest how and where he can deposit his monthly contribution.

  11. hi, I am NRI & want to know how NRI NPS account is diferent from resident NPS account? will there be extra charges for NRI compared to resident indians?

  12. sir, i have resigned from my bank job after 2 years of service. i had applied for PRAN 3 times but got it just week before my resignation that too in SMS(STILL NOT RECIEVED MY CARD PHYSICALLY)
    now i have joined state govt. job. my deductions from salary for past 2 year were not transfered to my PRAN by bank. now what will happen to my money. willi get employer contribution also.
    i also want to replace my bank account no. in the scheme (want to replace old salary ac with new one)as i dont want to deal with my old employer bank any more.
    i have applied again with new ac no.will i get a new PRAN or shall i have to continue the old one??
    please guide me

  13. How to apply for a PRAN card?
    I hv SBI s/b acc. Can my pop b SBI?
    Minimum how much contributions needs to be on monthly basis?
    N how N where to open an NPS account?

    • @Ankiet
      You can open NPS account in SBI branch. Once NPS account is opened, you will get PRAN card.
      Minimum Contribution per installment: Rs 500
      Minimum Contribution per year: Rs 6000
      Minimum Contributions per year : 1

  14. Hii thnks pankaj for the reply frm
    which account initially shud b opened Tier 1 or tier 2 account?

    From where can i get forms n wht all documents r required for the same ?

    • @Ankiet
      Tier 1 account needs to be opened first. Tier 2 can only be opened once you have Tier 1 account.
      You can download forms from this article page itself. Also these would be available at bank branches.
      You would need PAN card, Address proof and bank cancelled cheque for opening NPS account.