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 Limited, IDFC Pension Fund Management Company Limited, Kotak Mahindra Pension Fund Limited, Reliance Capital Pension Fund Limited, UTI 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 I – Mandatory 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 II – Voluntary 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.
- Allahabad Bank 033-22104754
- Axis Bank 1800 233 5577 / 1800 209 5577 / 1800 103 5577
- Central Bank of India 022-22153691
- Citi Bank- 1800-180-0123
- Computer Age Management Services Private Ltd. 044 – 30611606 / 07/ 08
- ICICI Bank 022-28308110
- IDBI Bank Toll Free Number for MTNL/BSNL subscribers 1800-22-1070 Toll Free Number for other than MTNL/BSNL subscribers 1800-200-1947
- IL&FS Securities Ltd. 022-42493000
- Oriental Bank of Commerce 011-47651319
- Reliance Capital Ltd. 022-3046 2300
- State Bank of Bikaner & Jaipur 18001806005
- State Bank of Hyderabad 09866582590/04023387471
- State Bank of India 1800 112211
- State Bank of Indore 1800-425-2241
- State Bank of Mysore 1800-425-2244
- State Bank of Patiala 1800 180 2010/0172-2648011
- State Bank of Travancore 18004255566
- The South Indian Bank 1800 843 1800 (Toll free)/1800 425 1809(Toll free)/0484 235 1923
- Union Bank of India 1800-022-2244
- UTI Asset Management Co. Ltd 1800221230
- Kotak Mahindra Bank 1800-102-6022
For more information, application form & offer document, walk into your nearest Service Provider branch of the above-mentioned Point(s) of Presence.
Application Forms
NPS (New Pension Scheme/System) - Application Form (456.0 KiB, 19,346 hits)
New Pension Scheme/System (NPS) - Offer Document (2.9 MiB, 14,183 hits)
New Pension System (NPS) - Welcome Kit (1.2 MiB, 9,388 hits)
NPS (New Pension Scheme) - Investment Guidelines (73.8 KiB, 10,652 hits)
New Pension System (NPS) Contribution Instruction Slip (NCIS) (15.1 KiB, 8,649 hits)
NPS Scheme Preference Change/Switch form (26.9 KiB, 3,485 hits)
Swavalamban Yojana Declaration Form (139.7 KiB, 3,662 hits)
Subscriber request form to change Point of Presence (POP) (63.3 KiB, 3,443 hits)
Subscriber request form to change POP-SP (16.4 KiB, 3,696 hits)
UOS-S12 Withdrawal form for Tier II account under NPS (47.0 KiB, 3,312 hits)
Request form for change in signature and/or change in photograph (12.8 KiB, 3,059 hits)
Request for Activation of Tier-II account under New Pension System (NPS) (215.3 KiB, 3,865 hits)
S1 - Subscriber Registration form to get PRAN (61.3 KiB, 3,621 hits)
Launch Notification:
state gorenment employees joined service before 2004 can invest in NPS pl, answer
@Chnndra
Any Indian can open NPS account, be it Govt employee or any private company employee.
they can open a new NPS account…
1-investment under new pension scheme follow which regime so far as the tax is concern??/
whether EEE or EET ?????????/
2-SALARY of the govt servent cover under NPS so far as income tax is concerned…..
a-include contribution of the govt b-Does nt include contribution of govt???????/
Thanks Mr.batra, but I wanted to know that , govt. employees who are already receiving pension, are also eligible for opening NPS account ? If yes, which tier he has to choose.
@Chnndra Mohan
If you are already above 60 years, then you cannot open NPS account. But if you are anywhere between 18-60 then you can open NPS account, if you don’t have one already.
Tier 1 is mandatory for NPS account, Tier 2 is optional.
nps is for people in the age group of 18 t0 55
Earlier the rule was that you cannot open a NPS if you are already 55. Have the rules been changed to allow anyone upto the age of 60 to open a NPS account? SO what happens if someone who is 59 open an account and deposits a large sum of money say about 1 crore and get the entire amount tax free after one year? Please explain. Thanks.
how to calculate pension in NPS ? if i am investing 3500/- per month and govt also the same amount. then how to calculate pension which i will get when i retire after 30 yers of service
@Anand
It cannot be decided now. It will depend on value of investment at that time.
I am Shivananja 55 years, How much I can invest, How much government will give
@K N Shivananja
As you are already 55 years old, it does not make sense to invest in NPS now.
If he is 55 years, then lock in period for him will be only 5 years and he can get benefit of tax free 10 % of basic salary as contribution from employer.
So it appears more beneficial from him.
Hi Pankaj – What is you reasoning behind suggesting that its not beneficial to open a NPS when you are already 55? I was considering opening a NPS account for my mom who is just above 55 and would like to know the pros and cons. Thanks.
@Ravi
Rule for minimum age to enter is now 60. But there is less benefit on entering at such age, as after 60 years, 40% of amount has to be used in buying annuity.
At present, tax treatment in NPS tier 1 is EET (amount taxed at withdrawal), only amount used by the subscriber to buy the annuity are not taxable.
After DTC, tax treatment will be EEE like PPF. There is no detailed clarity on maximum amount that can be invested and remains tax free, after DTC. So lets wait for DTC to implement.
Eligibility criteria for joining the Swavalamban Yojana for a subscriber is given below:
1. Permanent Retirement Account should be opened in the year 2009-10 or 2010-11 and
2. Minimum contribution should be Rs. 1,000 per annum (Financial year) in Tier I account and maximum contribution should be Rs. 12,000 per annum (Financial year) in both Tier I as well as Tier II account together
Swavalamban Yojana Declaration Form needs to be filled and submitted for availing this benefit. Forms can be downloaded from http://www.npscra.nsdl.co.in/download/Swavalamban-Yojana-Notification.doc and http://www.npscra.nsdl.co.in/download/Swavalamban-Yojana-Declaration-Form.doc
At any point in time before 60 years of Age: one would be required to invest at least 80% of the pension wealth to purchase a life annuity. Rest 20% of the pension amount may be withdrawn as lump sum.
On attaining the Age of 60 years and up to 70 years of age: At exit you would be required to invest minimum 40 percent of your accumulated savings (pension wealth) to purchase a life annuity from any IRDA-regulated life insurance company. You may choose to purchase an annuity for an amount greater than 40 percent. The remaining pension wealth can either be withdrawn in a lump sum on attaining the age of 60 or in a phased manner, between age 60 and 70, at the option of the subscriber.
Death due to any cause: In such an unfortunate event, option will be available to the nominee to receive 100% of the NPS pension wealth in lump sum.
Excellent responses Pankaj. You have addressed all my questions very clearly and precisely. Your knowledge on the topic is quite evident. Thanks once again.
Just one more quick question, can you confirm is DTC goes into effect on April 1, 2012 or has it been moved yet again? Thanks
@Ravi
As of now, 1st April 2012 is the date from when DTC will be applicable.
You can read more on direct tax code on: http://www.pankajbatra.com/india/new-direct-tax-code-dtc-highlights/
What is tax treatment of Tier II withdrawal ?
Can I make contributions through net banking ?
@RMLKO
NPS withdrawal from tier 2 will be taxable as of now.
As of now, there is no way to make deposit into NPS online through netbanking.
If the employee died before 60 Yrs of age then what amount will be refundalbe to the nominee under NPS.
@Vinay
Whatever will be the present value of units in NPS account, will be returned to nominee.
Pankaj – Have there been any updates to the mandatory annuity requirement from a Tier 1 account post retirement?
Hi, I just opened a NPS account and started ECS thinking I will get a 80C deduction upto Rs. 1 Lakh. However, now I am confused whether I should cancel the ECS and direct that money into PPF or ELSS. Is there any deduction under the Income Tax act at all for Tier 1 contribution in Assessment Year 2012-13/ I am a private sector employee and have opened a NPS account on my own accord. I am also covered by EPF. I thought once ELSS ceases to exist, NPS would be a good option. Please clarify.
@Mohit
Contribution to NPS Tier 1 account is acceptable for tax deduction under 80-C.
After Direct tax code comes into play, NPS will still be available for exemption.
Now that NPS will be EEE is there a limit on the maximum contribution one can make in the NPS account each year? Just to clarify I am not asking about the contribution deduction which is covered by section 80C. My question is about the maximum contribution permitted in an NPS account annually. Thanks.
Thanks Pankaj. However, I couldn’t find any mention of 80-C on the account statement to submit to my employer who is absolutely unaware of NPS. Could you help me with any links to Income Tax website or any other legitimate information that I can quote?
@Mohit
Here is relevant text from NPS official website (http://www.npscra.nsdl.co.in/all-faq-about-nps.php) :
“At present, the tax treatment for contribution in Tier I account is EET, “Exempted-Exempted-Taxed” i.e., the amount contributed is entitled for deduction from gross total income upto Rs. 1.00 lac (along with other prescribed investments) as per section 80C (as per the provisions of the Income Tax Act, 1961 as amended from time to time). The appreciation accrued on the contribution and the amount used by the subscriber to buy the annuity are not taxable, Only the amount withdrawn by the subscriber after the age of 60 is taxable.
As per the proposed Direct Tax Code, the tax treatment for contribution in Tier I account will be “Exempted-Exempted-Exempted” i.e. in addition to the existing benefit, the amount withdrawn by the subscriber after the age of 60 will be exempted from tax like PPF. There is no tax benefit for contributions in Tier II account.”
sir,I am 25yrs old, working since 2yrs ,now working at Deccan Herald,so please clarify me that,which NPS scheme is suitable to me?? which is benificial,
shreek(dot)ph(at)gmail(dot)com,9611587868
@Shreeram
You can open a NPS account and go for auto choice based investment.
Thank you,@Pankaj
We are small corporate entity having 60 employees and are covered under EPF Can we offer NPS in leu of EPF for willing employees
@Shripad
Yes, NPS account can be opened for employees.
You may contact any bank offering NPS accounts or CAMS (http://www.camsonline.com/PensionSystemServices.aspx) for the same.
Thanks for quick response My query is if we can open NPS in place of EPF we can not contribute to both
@Shripad
Currently there is no such provision from Govt side to allow NPS as substitute for EPF.
But there is pressure building because of inefficiencies with which PF is operated and managed.
Thanks Unless that’s allowed no of accounts will remain low
Swavalamban initiative – What is the maximum amount one can contribute in their NPS account to claim the Swavalambam initiative? I opened my account at CAMS (which by the way has the worst customer service ever). How do I claim the swavalambam benefit. Is there a form to complete? Within how many years of making a deposit can the swavalambam benefit be claimed?
Can you please guide me to start NPS and suggest nearest POP-SP location and contact details
@Y Rajiah
This page (http://www.pankajbatra.com/india/new-pension-scheme-nps-india/) has all relevant details about NPS.
What is the maximum amount one can invest in NPS in a year ? Since this is an EEE scheme, what will happen to tax rebate when part of the funds are invested by employee and part are invested by employer if the investment is more than Rs 1 lac per year ?
@Janak
In NPS documents/website, there is no mention of maximum investment amount per year.
Most probably some clarification will come out before direct tax code is implemented and NPS come under EEE regime.
And regarding employer portion of investment, its outside 1 lac limit like PF. Only employee contribution will be counted in 80-C 1 lac limit.
how to calculate what pension we will get? is there any calculator available?
@Anand
There is no fixed/guaranteed returns on NPS investment. It will depend on your fund selections and market conditions.
I am 57 years of age. I contribute to EPF more than Rs 1 lac and also PPF fully every year. Can I invest Rs 5 lacs per year in NPS ? What kind of returns should I expect and whether it will continue to be tax free in years to come.
@Janak
As you are already investing into EPF and PF for more than 80-C limits, it does not make sense to invest into NPS now.
You can better invest into a mix of equity diversified/balanced and debt based mutual funds, which can generate a better return than NPS.
As of now there is no maximum limit specified for investment in NPS, so you can invest 5 lacs per year too. Returns are not fixed and depends on your allocation and market conditions.
Over a long term for a equity rich investment you can expect around 12-15% return on investment.
From 1st April, 2012, when direct tax code is implemented, NPS will come under EEE regime, there won’t be any tax on returns also.
I have paid of ?Rs.10000/- each for my a/c as well as for my wife a/c. So for I have not got any information so far. i have paid thro Union Bank of India. Still I have not got the No. In this regard whom I have to contact.
regards
@K N Shivananja
Track the status of the Registration and the Contribution Investment through receipt number provided by POP-SP on this link: https://cra-nsdl.com/CRA/limFileMisSts.do
My idea was to put the money in a safer investment and free from hassles because of the new pension scheme administered by the govt.
If the scheme is going to generate 12-15% compunded return per annum, it is a good return and also tax free. It does not matter whether we get any tax deduction while investing. This is my view. Please endorse.
Also I am nearing 58 and would not like too much volatility in investments.
@Janak
Your idea is not bad, But only time will tell fund management capabilities of fund managers in NPS.
If Government does not focus on this, it may also become a bad choice like EPF.
Also there are some conditions applicable in case of NPS account: After age of 60 years, at exit you would be required to invest minimum 40 percent of your accumulated savings (pension wealth) to purchase a life annuity from any IRDA-regulated life insurance company. You may choose to purchase an annuity for an amount greater than 40 percent. The remaining pension wealth can either be withdrawn in a lump sum on attaining the age of 60 or in a phased manner, between age 60 and 70, at the option of the subscriber.
@Janak
Plus 12-15% return is not guaranteed and its an indicative return for long term (more than five years) in a majority of equity based investment.
At your age of 58 years, its not advisable to invest majority into equity. You should not invest more than 20-30% of your investments into equity portions.
Mr. Batra, I would like to know whether Central Govt. contribution towards new pension scheme (NPS) is exempted from income tax apart from the standard 1 lakh deduction under 80CCD ? If so, where is the Ciruclar from Govt. of India for the same act ? It is written that it is effective from 1.4.2012 in the Income tax Act 36(1)( iva), where it is written that : ” any sum paid by the assessee as an employer by way of contribution towards a pension scheme, as referred to in section 80CCD,
on account of an employee to the extent it does not exceed ten per cent of the salary of the employee in the previous year.”
Explanation.—For the purposes of this clause, “salary” includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites;
The clause (iva) shall be inserted after clause (iv) of sub-section (1) of section 36 by the Finance Act, 2011, w.e.f. 1-4-2012 :
You can see it http://law.incometaxindia.gov.in/DIT/Income-tax-acts.aspx
Please clarify it as all central institutes are not adopting this rule in this financial year. Expecting your help regarding the exact notification or circular from Govt. of India. Thanks…
@B.Chand / Das P
As per finance bill 2011 (http://indiabudget.nic.in/ub2011-12/fb/bill31.pdf, refer to page 2), there is an amendment to section 36.
This rule is applicable from 1st April, 2012.
Mr. Batra, Thanks for your reply. Now the confusion is on the income tax concession to the employers contribution is applicable for the finance year 2011-2012 or finance year 2012-2013. The rule applicable on 1st April, 2012 for the assessment year 2013-2014 or still it is applicable for the assessment year 2012-2013.
I am confused with this AY and FY which are not same …
Can you clarify whether the following is applicable in this year ?
In this year’s budget, the Finance Minister announced that the employer can invest up to 10% of the CTC of the employee in the National Pension Scheme (NPS) account. This amount will not be taxed to employers as the employers can claim these contributions as business expenses made by them. Also, the individual will not have to pay any tax on this amount being deposited by the employer and this investment would also not form a part of the limit of Rs. 1 lakh under the section 80-C.
The above paragraph depends on the employer, but not on employees !!!
If our institute does not deduct employer’s contribution from total deduction, is it possible for me to fill income tex return next year ??
Expecting your kind advice..
Thanks..
@B.Chand
Rule is applicable from FY 2012-13 (assessment year 2013-14).
Dear Mr. Batra,
You have written the following reply to query to Janak Seth:
And regarding employer portion of investment, its outside 1 lac limit like PF. Only employee contribution will be counted in 80-C 1 lac limit.
I need the circular or notification details Govt.of India for the same as large no. of Govt. institute do not follow the same. Your help will be appreciated.