Frequently asked Questions on National Pension System/Scheme (NPS)
Q. What is National Pension System (NPS)?
National Pension System (NPS) is a defined contribution pension scheme notified by
Government of India vide Ministry of Finance notification number F. No. 5/7/2003-ECB&PR ,
dated 22nd December, 2003. NPS enables an individual to undertake retirement planning while in
employment. With systematic savings and investments, NPS facilitates accumulation of a pension
corpus during their working life. It is regulated by the Pension Fund Regulatory and
Development Authority (PFRDA).
NPS is an easily accessible, low cost, tax-efficient, flexible and portable retirement savings
account. It provides a platform for savings to create a Retirement Corpus (Pension Wealth)
through 4 baskets of investments i.e. Equity (E), Corporate Bonds (C), Govt. Securities (G) and
Alternate Assets (A) commonly known as E, C, G and A.
Q. Who can join NPS?
Any citizen of India, whether Resident or Non-Resident between 18-70 years of age can join the
NPS.
Q. What are the benefits of investing in NPS?
NPS is one of the best Retirement Planning Scheme available in the country today. It costs little
but delivers more. It has the following extra ordinary benefits:
1. Unique Tax Benefits: NPS offers Tax-Deduction benefits under three different sections
of the Income Tax Act, 1961 namely 80CCD(1), 80CCD(1B) and 80CCD(2).
2. EEE Status: NPS enjoys “exempt, exempt, exempt” tax treatment. Now there is
complete tax exemption to the withdrawals on maturity. Hence, now there is Exemption at
the time of Investment, Exemption at the time of accretion and Exemption at the time of
Withdrawal giving it a EEE status.
3. Low Cost: NPS is one of the lowest cost pension schemes in the world. The total
recurring expenses inclusive of the Fund Management fee and all other handling and
administrative charges would work out to be around 0.26% p.a. The Lower Expense ratio
would lead to HIGHER RETIREMENT CORPUS.
4. Flexible: Subscribers have freedom to choose and change the
i) Investment Pattern/Mix,
ii) Pension Fund Managers (PFMs),
They also have a choice of Life Cycle Fund.
5. Portable: NPS account can be transferred across employment, location/geography.
6. Optimum returns: Attractive Market linked returns based on investment choice made by
the subscriber/employer.
7. Well Regulated- NPS is regulated by PFRDA, with transparent investment norms,
regular monitoring and performance review of fund managers by NPS Trust/PFRDA.
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Q. Can you elaborate on the Tax-Deduction Benefits available for investments under NPS?
NPS offers Triple Tax benefits which can be summarised as under:
Tax benefits for Salaried Individual Tax Benefits for Self Employed Individual
1. You may invest up to 10% of your 1. You may invest up to 20% of your
basic salary + dearness allowance and gross annual income and claim tax
claim tax exemption on the invested exemption on the invested amount
amount under section 80CCD(1). This under section 80CCD(1). This tax
tax exemption is subject to a limit of exemption is subject to a limit of
Rs.1,50,000 under Section 80C of Rs.1,50,000 under Section 80C of
Income Tax Act, 1961. Income Tax Act, 1961.
2. You can claim additional tax 2. You can claim additional tax
exemption on investment up to exemption on investment up to
Rs.50,000 in NPS under sub-section Rs.50,000 in NPS under sub-section
80CCD(1B). This benefit is over and 80CCD(1B). This benefit is over and
above the limit of Rs.1,50,000 under above the limit of Rs.1,50,000 under
section 80C. This is an exclusive tax section 80C. This is an exclusive tax
deduction available for investment in deduction available for investment in
NPS only. NPS only.
3. You can also avail Tax deduction on
Employer’s Contribution to NPS
-----
up to 10 % of salary (Basic + DA),
under Section 80 CCD(2)*.
* tax deduction under section 80 CCD (2) of Income Tax Act may be claimed by the subscriber
in addition to the tax benefits available under Sec. 80 CCE, subject to an aggregate limit of Rs.
7.5 lakh of contributions made by the Employer towards NPS, Recognized Provident Fund and
Approved Superannuation Fund.
All the above Tax Deduction Benefits are applicable under the Old Tax Regime.
Under the New Tax Regime, one can avail Tax Deductions on Employer’s Contribution to NPS
up to 14% of Salary (Basic + DA) under Section 80 CCD (2).
Q. What is the process of enrolling in NPS?
You can enroll in NPS either in Offline Mode i.e. by filling Physical Application Forms or
Online Mode through the link given in our website under the heading “Join NPS”
Through Offline Mode
If you are an Indian Citizen (Resident/Non Resident) between the age of 18 years to 70 years, you
can contact any of our branch offices and ask for NPS Applications Forms and additional
information about NPS.
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You will be required to take the following steps:
A. Fill up the NPS Application form with Black INK (NPS Application Form) and deposit
the same in our office.
B. Documents to be attached along with the NPS Application Form
(i) Affix one color passport photograph (Size 3.5 cm X 2.5 cm) on the NPS
Application Form
(ii) Proof of Address (AADHAR Card/ Bank Passbook with photo on it/ Voter ID/
Passport etc.)
(iii) Identity Proof (PAN Card/ Driving License/ Passport etc.)
(iv) Cheque drawn in FAVOUR of "UTIPFL Collection Account - NPS - NPS Trust"
(v) A cancelled cheque leaf with name preprinted on it.
Through Online Mode:
Please use the link given in our website under the heading “Join NPS”
Q. How does the NPS feature compare to other Retirement Plans?
NPS is far superior to other perceived Retirement plans in many ways. The same can be
summarized as below:
Parameters <=== Products ===>
Insurance
NPS MF Pension Products PPF
Pension Products
Tax Deductions Unique Tax Deduction Only under Sec 80 C Limit Only under Sec 80 Only under Sec
Benefits under 3 different C Limit 80C Limit
Sections:
i) Sec 80 CCD(1)
ii) Sec80 CCD(1B)
iii) Sec 80 CCD(2)
Low Cost Expense Ratio Ranges Expense Ratio generally Expense Ratio Government
between 0.26% to 0.28% Ranges between 2% to Ranges over 2.50% Administered
2.50%
Returns Market Linked Market Linked Market Linked Assured
Asset Allocation Subscribers can choose Based on the Investment Based on the Government
and change their Asset Objective of the Scheme. Investment Administered
Allocation Pattern based Investors cannot customize Objective of the
on their Risk appetite it. Scheme. Investors
without any exit load. cannot customize it.
Liquidity Limited liquidity before Liquidity available subject Liquidity available Limited
the Retirement Age to exit load subject to huge exit Liquidity and
load that too not
before 7th Year
Tax Treatment on - The amount used for - Debt funds are taxed at Maturity Amount Maturity
Maturity purchasing Annuity the Marginal Rate of TAXFREE Amount
(Min 40%) – TAXFREE Income Tax.; TAXFREE
- Rest of the Withdrawal - LTCG on Equity Funds
of the Retirement Corpus more than Rs. 1 lakh is
is totally TAXFREE taxed at the rate of 12.5%
(Has a EEE Status) without indexation
Fund Managers Can be Changed once a Can not be Changed Can not be Changed N/A
Year without any exit
load
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Q. How can I withdraw my contributed amount?
(Exit / Withdrawals / Liquidity options available in NPS)
The subscriber can exit from NPS and withdraw the accumulated pension wealth in the
following manner. No other exits or withdrawals are permitted:
For subscribers joining between 18-60 years:
a. Partial Withdrawal - Tax-free partial withdrawals up to 25% of self-contribution
are allowed after 3 years of operation of NPS Account. One can withdraw up to a
maximum of 3 times during his/her entire tenure in NPS for specific reasons viz
illness, disability, education or marriage of children, purchasing property, starting a
new venture.
b. Premature Withdrawal - Exit from NPS before attainment of age of 60 years
(irrespective of cause): At least 80% of the accumulated pension wealth of the
subscriber needs to be utilized for purchase of an annuity providing for the monthly
pension of the subscriber and the balance (20%) can be withdrawn as a lump sum
by the subscriber. If the total corpus is not exceeding Rs. 2.5 lac, then the
subscriber has the option to withdraw the whole corpus in lumpsum. Subscriber
can exit from NPS only after completion of minimum 5 years in NPS.
c. Normal Withdrawal - (Upon attainment of age of 60 years or
Superannuation): At least 40% of the accumulated pension wealth of the
subscriber needs to be utilized for purchase of an annuity providing for the monthly
pension of the subscriber and the balance (60%) can be withdrawn as a lump sum
by the subscriber. If the total corpus is not exceeding Rs. 5 lacs, then the subscriber
has the option to withdraw the whole corpus in lumpsum.
d. Exit due to the death of the subscriber: In case of unfortunate event of death of a
subscriber, the nominee/legal heir can withdraw the entire accumulated corpus.
The nominee / family members of the deceased subscriber can also purchase
annuity, if they desire.
For subscribers joining between 60-70 years:
The exit conditions for subscribers joining the NPS beyond the age of 60 years in the NPS –
Private Sector will be as under:
a. Normal Withdrawal: After completion of 03 years, subscriber can withdraw
maximum 60% of the corpus as lumpsum and minimum 40% of the corpus must be
utilized for purchasing an annuity plan for receiving the pension. If the
accumulated corpus is less than Rs 5 lakhs, the entire corpus is paid as lumpsum to
the subscriber.
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b. Premature Withdrawal: Any exit before completion of 3 years will be treated as
premature exit. In such case, the subscriber will be required to annuitize at least
80% of the corpus for purchase of annuity and the remaining corpus can be
withdrawn in lump sum. In case the accumulated corpus at the time of exit is equal
to or less than Rs. 2.5 lac, the entire corpus is paid as lumpsum to the subscriber.
c. Exit due to the death of the subscriber: In case of unfortunate event of death of a
subscriber, the nominee/legal heir can withdraw the entire accumulated corpus.
The nominee / family members of the deceased subscriber can also purchase
annuity, if they desire.
Q. What are the important mandates to be given in the application form?
The applicant has a choice of selecting his own Pension Fund Manager out of the eleven Fund
Managers appointed by PFRDA. He has also to choose the investment mix/ pattern.
Q. Can I change my Fund Manager and the investment pattern at a later stage?
Yes, one can change the Pension Fund Manager once a year and the investment mix/pattern
four times in a year.
Q. What is the minimum contribution amount and the periodicity of contribution?
A subscriber must contribute a minimum of Rs.1,000/- (Rupees one thousand only) per Year.
The minimum amount per contribution is Rs. 500/- (Rupees five hundred only). However,
there is no maximum limit.
There are no restrictions on the number of times the contribution can be made.
Q. What will happen if I default on payment?
In such a scenario, the account will become inactive/dormant, and the subscriber will not be
allowed to do any online transaction / service request. For activation of account, the subscriber
is required to deposit the minimum annual contribution amount along with the applicable PoP
charges to the nearest PoP branch. Once the amount is credited to his/her NPS account, it will
become activated again.
There is no penalty for the non-payment in any Financial Year.
Also, during the period you do not pay, NPS will keep charging the expenses against your
accumulated corpus. If you continue to default, the account will be closed as and when the
value of the units falls to Zero.
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Q. Till when I can contribute and when my pension will start?
Under NPS, the Normal Retirement age is 60 Years. However, if the subscribers want, he/she
can continue to contribute till the age of 75 Years.
Q. What will be the modus operandi of getting pension and what will be the quantum of
Pension?
When you attain 60 Years of age, a Retirement corpus will be formed out of your
contributions and returns generated on the same. You will have to buy an annuity with a
minimum of 40% of the Retirement Corpus generated by the Annuity Service Providers
enrolled under NPS which will give you a monthly pension for whole of your life span. You
have the freedom to annuitize the whole of the Retirement Corpus or any percentage over and
above 40% as you deem fit. The rest of the amount can be withdrawn with Tax-free status.
The quantum of Pension is not fixed. It will depend upon the volume of your contribution, the
returns generated over the tenure of the scheme, the percentage of your corpus utilized for
buying annuity and the prevalent rate of returns at the time of buying annuity.
Q. Are the Returns under NPS guaranteed? If not, what returns can I expect from this
system?
No, returns under the NPS are not guaranteed. The returns generated in NPS will be market
linked. The returns generated will depend on the investment pattern opted, the quality of Fund
Management and the various costs involved.
Q. Where will the amount be invested and what choices do I have?
The amount will be invested in Equities, Govt. Securities, Corporate Bonds and Alternate
Assets as per the investment pattern/Investment mix opted by you. However, you cannot opt
for more than 75% in equities and more than 5% in Alternate Assets.
In case you do not choose any investment pattern it will be invested as per ‘Auto Choice’
mode. This is also sometimes referred as “Life Cycle Fund” where the asset allocation is a
function of your age. Under Auto Choice mode, investors have 3 options: -
i) Aggressive Life Cycle Fund- LC75 (with Equity up to 75%)
ii) Moderate Life Cycle Fund- LC50 (with Equity up to 50%)
iii) Conservative Life Cycle Fund- LC25 (with Equity up to 25%)
In case you do not choose any option out of the three above, you will be put under “Moderate
Life Cycle Fund (with Equity up to 50%).
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Q. Is there any nomination facility? What happens if the member dies before the
commencement of pension?
Yes, there is a provision of nomination. The accumulated amount along with growth will be
paid to the nominee.
Q. What should the employee do if he switches his job ?
In case the employee switches his job to some other Corporate, he would simply need to shift
the existing NPS account from the current Employer to the new Employer by submitting the
Inter-Sector Shifting form to the new Employer.
In a scenario where the Employee leaves the current Employer and doesn’t join any other
Employer but opts to start his own enterprise, the subscriber can continue his NPS account.
The subscriber will shift from corporate model to All Citizen model by submitting the Inter-
Sector Shifting form to the existing POP.
Q. What is the process of taking the Annuity payout at the time of Superannuation?
At the time of Superannuation, the employee needs to login in to his NPS account and proceed
for exit.
A form will be generated which the employee will fill in and upload with required documents.
This is to be successfully submitted electronically with E-sign/OTP authentication. He will opt
for annuity as per his requirement.
The employees can check the prevailing annuity rates and the annuity options given by the
empaneled Annuity Service Providers on the given link of the CRA ([Link]
[Link]/CRAOnline/[Link]). This will assist them in choosing the best option
available.
Q. What are the different Options available at the time of Retirement?
The Retiring Employees have option to choose the following at the time of retirement i.e. at
60 years:
(A) Close NPS account and opt for Normal Withdrawal
(B) Opt for Deferment (of annuity or withdrawal or both):
(i) If only Annuity is deferred, it can be deferred till the age of 75 years.
(ii) If only Withdrawal is deferred, it can be deferred till the age of 75 years.
(iii) If deferment of both annuity and withdrawal is opted, it can be deferred till the
age of 75 years
(C) Opt for Continuation of accounts at the time of retirement: In such a scenario,
account can be continued till 75 years and, if required, can be closed any time before
75 years of age, as per the wish of account holder.
Option once chosen cannot be changed later on.
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Q. What is Tier I and Tier II Account in NPS? How do they differ from each other?
Under NPS, there are two types of accounts – Tier I & Tier II.
Tier-I is Non-withdrawable Individual Pension Account. It is the default pension account
having all the tax incentives under the Income Tax Act. Withdrawals from Tier I Account i.e.
Pension Account before the age of superannuation is possible only in special circumstances
and that too at the maximum of 25% of Self Contribution.
Tier-II is an optional investment account available to a subscriber who has an active Tier-I
account. This account has no withdrawal restrictions and tax benefits. Tier-II is not a Pension
Account. The PRAN number for both the accounts will remain the same.
A comparison between the two are as under:
Tier – I Tier - II
Individual Pension Account Optional Account – Require an active Tier – I
Exit/withdrawal as per rules/regulations only Unrestricted Withdrawals
Min. Contribution Rs.500/- Minimum Contribution to open Rs.1000/-
Min. Contribution per Year Rs.1000/- Min. Contribution per Year Rs.250/-
Tax benefits are available No tax benefits on contribution/gains
Any Citizen aged between 18-70 eligible NRIs/OCIs are not eligible
Choose any Pension Fund/Investment Pattern Choose any Pension Fund/Investment
Pattern*
*Subscriber can select different Pension Fund and Investment Option for his/her NPS Tier I
and Tier II accounts
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