National Pension System: The National Pension System is a scheme under which financial support is provided for its old age. It was started in January 2004 for government employees but in 2009 it was opened to all sections. Under this scheme you can contribute regularly during your working age. After this, on completion of 60 years of age, he can withdraw a portion of the amount collected at one time and from the remaining amount, he can get income regularly as pension. With an investment of only 5 thousand every month from NPS, you can arrange a pension of 20 thousand in old age. Let us know about this scheme and then know how to contribute to it.
Understand what is the benefit of NPS
Suppose you started contributing to NPS from the age of 30 and every month by the age of 60 you contribute Rs 5000 every month. Let’s calculate what you will get.
Monthly investment in NPS: Rs 5000 (Rs 60,000 annually)
Total contribution in 30 years: Rs 18 lakh
Estimated Return on Investment: 8%
Tax Saving: 5.4 Lakh
Total amount on maturity: Rs 74.21 lakh
Annuity purchase: 40%
Estimated Annuity Rate: 8%
Maximum tax free withdrawal: 60% of maturity amount
Pension at the age of 60: Rs 19,790 per month
Outright Cash: 44.52 Lakh
(Note: Here the calculation has been done for purchasing annuity with 40% amount on NPS calculator. It is necessary to buy 40% annuity.)
Two types of accounts under NPS
Two types of accounts can be opened under the National Pension System – Tier 1 and Tier 2. It consists of Tier 1 pension account and Tier 2 voluntary savings account. Tier 1 account can be opened by any person but Tier-2 account can be opened only if you have Tier-1 account. Apart from this, another important thing is that the tax exemption you get on contributing to it is available only on Tier-1 account.
Tax relief on Tier-1 account
Under the NPS, under Section 80CCD (1B) of the Income Tax Act, you get the benefit of tax rebate on investments up to Rs 50 thousand. If you have met the limit of Rs 1.5 lakh under Section 80C, then NPS can also help you in extra tax savings. There is no tax on withdrawing up to 60 per cent of the maturity of this scheme.
How to open account
There are two ways to open an NPS account, offline and offline.
- To open an offline account, visit the nearest POP (point of presence) centers like SBI, ICICI Bank, HDFC Bank.
- Take a Subscriber Form there and submit it with KYC papers.
- Initial investment in Tier 1 can start from a minimum of Rs 500 and in Tier 2 a minimum of Rs 1,000. However, it is mandatory for you to contribute a minimum of Rs. 1000 in Tier 1 account and Rs. 250 in Tier 2.
- After investment, the POP will give you a PRAN (Permanent Retirement Account Number). With the help of this number and password, the account can be run and you can also see your contribution online.
- For this process you will have to pay 125 rupees.
Stepwise way to open online NPS account
- First you go to the NPS Trust website. https://www.npstrust.org.in/content/open-your-nps-account-online
- After this, you click on Individual category.
- Then enter the Aadhaar or PAN number. You will get one time password related to this on mobile. Verify this.
- After this, you submit the information to get an enrollment number.
- Select Pension Fund Manager, then choose the medium of investment.
- After that the nominee will have to be selected.
- Upload photo and signature.
- After this, an initial investment of at least Rs 500 in a Tier-I account and at least Rs 1000 in a Tier-II account is necessary.
Facility to change online nominee
If you ever need to change the nominee in the NPS account, there is no need to worry about it. You can change the nominee online at home.
- NPS subscribers can access their CRA system with login credentials for online changes to the nominee.
- After that, under the ‘Demographic Changes’ menu, select the ‘Update Personal Details’ option.
- Subscriber will then have to select the option to add / update the nominee details.
- After that NPS subscribers will have to submit details such as the name of the nominee, relationship with the nominee and percentage share.
- Once the detail is saved and confirmed, subscribers will receive an OTP on the registered mobile number.
- Submit this one-time password (OTP).
- Subsequently, the subscriber will need to authenticate the changes by selecting the e-sign option.
- Customer will be taken to e-signature service provider for e-sign where he has to enter Aadhaar / Virtual ID and click on Send OTP.
- OTP will be sent to the mobile number registered with UIDAI.
- Subscriber will have to submit OTP and click on verified OTP.
- After verification, the nominee details will be updated in the NPS record.
- If that e-sign fails, the subscriber will have the option to update the nomination according to the existing physical process.