Eligibility Criteria for National Pension System (NPS)
The National Pension Scheme was introduced in January 2004 as a replacement for government pensions offered to government employees. However, in 2009, it became accessible to individuals planning for their retirement. Today, even private company employees and self-employed individuals can participate in NPS.
The NPS is managed by the PFRDA (Pension Fund Regulatory and Development Authority). It stands out as one of the most cost-effective pension schemes worldwide, providing an economical option for retirement planning. NPS offers flexibility to subscribers, allowing them to choose their pension fund and asset allocation.
Another feature of the NPS is its portability, enabling the seamless transfer of NPS accounts between different occupations and geographical locations. NPS also offers multiple tax benefits to account holders.
NPS promotes transparency, granting subscribers 24/7 online access to their accounts, along with the requirement for public disclosures, ensuring a clear and open investment environment.
Eligibility to invest in NPS
To invest in an NPS, you must meet specific eligibility criteria, including age and documentation. If you plan to invest in NPS on your own, the eligibility requirements are as follows:
- You should be above 18 years old but below 70 at the time of submitting your NPS application.
- You can be a resident Indian or an NRI.
- You need to provide valid KYC documents such as Aadhaar, PAN, etc., along with your application.
- Hindu Undivided Families (HUFs), Persons of Indian Origin (PIOs), and Overseas Citizens of India cannot subscribe to NPS.
Eligibility criteria for NRIs to invest in NPS
If you’re an NRI (Non-Resident Indian) interested in investing in the NPS account, you must meet specific eligibility criteria. To participate in NPS as an NRI, you need to fulfil the following conditions:
- Your age should fall within the bracket of 18 to 70 years and you must complete your KYC requirements.
- Holding a valid passport is mandatory.
- You should maintain a valid bank account, either in the form of a non-resident external account or a non-resident ordinary account.
- Contributions made by an NRI are subject to regulatory requirements as prescribed by RBI and the evolving mandates of FEMA.
- It’s important to note that if you ever cease to hold Indian citizenship as an NRI, your NPS account will become inactive.
Frequently Asked Questions (FAQs)
How to enrol in NPS?
Joining the NPS involves opening an NPS account through entities known as POPs (Point of Presence). Most banks, both public and private, serve as POPs, along with several financial institutions.
What are the documents required for NPS account opening?
When opening an NPS account, you must complete the subscriber registration form and provide proof of identity, address, and date of birth to the chosen POP. Download the Floatr app and complete your registration digitally within 10 minutes.
What is a PRAN?
Upon enrollment, every NPS subscriber is issued a unique 12-digit number known as the PRAN(Permanent Retirement Account Number).
What are the differences between Tier-I and Tier-II accounts?
NPS offers two types of accounts: Tier-I (mandatory) and Tier-II (voluntary). The primary distinction between them lies in the withdrawal options. Tier-I accounts have withdrawal restrictions, even post-retirement, while Tier-II accounts offer more flexibility, allowing subscribers to withdraw their entire corpus if desired. No tax exemptions are available on investments done in Tier-2 and gains are also taxable.
What is the minimum amount you need to contribute for NPS?
To maintain an active Tier-I account, you must contribute a minimum of Rs 1,000 annually. Failure to meet this requirement results in the account being frozen, with reactivation requiring the minimum contribution and a penalty of Rs 100.
Does the government also make contributions to the NPS account?
The government does not make contributions to individual NPS accounts.
Who can manage the pension funds?
PFRDA-registered pension fund managers manage the investments in NPS.
What are the types of investment choices in NPS?
NPS offers two investment choices:
Active choice: Investors have the freedom to allocate their funds among various assets and change whenever they prefer.
Auto choice: This option automatically adjusts investments based on the subscriber’s age. Portfolio rebalancing is done every year automatically.
What are the tax benefits offered under NPS?
NPS provides tax benefits to individuals is under three different IT sections-
- u/s 80CCD(1): Investment of up to ₹1.50 Lakhs exemption on self contribution. This is part of overall ₹1.50L limit u/s 80C
- u/s 80CCD(1B): This allows additional exemption of ₹50,000 on self contribution
- u/s 80CCD(2): This exemption is available for salaried professionals only. Employer contribution to NPS up to 10% of one’s basic salary is exempted under this section. There is an upper cap of ₹7.50 Lakhs annual exemption where Employer PF + Employer NPS should be within ₹7.50 Lakhs.
What are the withdrawal rules and processes under NPS?
NPS is primarily a pension product meant to stay invested until retirement. At the age of 60, you must use at least 40% of the corpus to purchase an annuity from a PFRDA-listed insurance company. You have the option to withdraw 60% of the corpus tax-free.
NPS also allows you to take an early retirement before the age of 60. In this case, your account should be atleast 5 years old. You can withdraw 20% of your corpus and purchase an annuity with the balance 80%.
To withdraw money from NPS, you need to submit a withdrawal application to the POP with relevant documents. The POP authenticates the documents and forwards them to the Central record-keeping agency and NSDL. CRA registers your claim, providing an application form and document details. After completing the necessary steps, CRA processes the application and settles the account.
What are the documents required for withdrawal?
When submitting withdrawal forms, include the following documents:
- Original PRAN card
- Attested copies of proof of identity and address
- A cancelled cheque
What is Annuity?
An annuity provides regular income, payable at specified intervals, for a chosen period. In NPS, at least 40% of the corpus must be used to purchase an annuity from an ASP (Annuity Service Provide).
In conclusion, the NPS stands as a robust and government-regulated solution for retirement planning. Whether you are a resident Indian or an NRI, NPS offers a secure pathway to a stress-free retirement.
Floatr makes your retirement journey simple, all you have to do is download the Floatr app, complete your KYC, and begin your retirement plan within seconds. The app also offers an amazing feature where you can set your financial goals and keep track of where you stand today.
So, take the first step towards your retirement goal by downloading the Floatr app today!