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Table of Content
1. What is the National Pension System (NPS)?
3. What are the Features and Benefits of the National Pension System?
4. Charges Associated with an NPS Account
5. Tax Deductions for Investments in the National Pension System
6. Who Should Invest in the National Pension System?
7. How to Open a National Pension System Account?
8. Wrapping-Up
Retirement planning is crucial for financial independence. Investing in the National Pension System (NPS) is among the best pension option. Here's what you need to know about this retirement savings scheme.
The National Pension System (NPS) is a government scheme providing a stable income in retirement. It's a voluntary savings scheme with a minimum annual investment until age 60. Two types of accounts exist: Tier-I (mandatory) and Tier-II (optional with Tier-I).
To invest in the National Pension System, open a Tier-I or Tier-I and Tier-II account. Then, start investing regularly or with a lump sum amount. Your investments join others' based on your risk profile. At age 60, withdraw up to 60% as a lump sum and use the remainder to purchase an annuity plan for regular post-retirement payments.
The National Pension System offers plenty of features and advantages that make it one of the best pension options in India. Here’s an overview of some of the most important benefits and features of this scheme.
Compared to some of the other best pension options, the charges associated with the National Pension System are relatively low. Here’s a table outlining some of the key charges that apply to NPS accounts.
Particulars |
Charges |
Permanent Retirement Account (PRA) opening charges |
Rs. 15 to Rs. 40 (depending on the service provider) |
Annual Account Maintenance Charge |
Rs. 14.40 to Rs. 69 (depending on the service provider) |
Initial Registration Charges |
Rs. 200 to Rs. 400 (depending on the service provider) |
Financial Transaction Charges |
0.50% of the contribution, subject to a minimum of Rs. 30 and a maximum of Rs. 25,000. |
Non-Financial Transaction Charges |
Rs. 30 |
Asset Servicing Charges |
0.000000001770% per annum (for electronic & physical segments) |
Investment Management Fee |
0.03% to 0.09% (depending on the AUM of the pension fund you invest in) |
The investments that you make in a Tier-I NPS account can be claimed as a deduction from your total taxable income. Here’s a quick overview of the amount that you can claim as a deduction under various sections of the Income Tax Act of 19611.
Income Tax Act, 1961 |
Maximum Claim Amount (per financial year) |
Available For |
Section 80CCD(1) |
10% of Basic Pay + Dearness Allowance (salaried) or 20% of gross income (self-employed), subject to an overall limit of Rs. 1,50,000 |
Salaried and self-employed individuals |
Section 80CCD(1b) |
Rs. 50,000 |
Salaried and self-employed individuals |
Section 80CCD(2) |
10% of Basic Pay + Dearness Allowance |
Salaried individuals only |
Note: The deductions applicable under sections 80CCD(1b) and 80CCD(2) can be claimed over and above Rs. 1.5 lakhs limit as per section 80CCD(1). That said, the maximum amount that you can claim as a deduction under all of the three sections combined is limited to Rs. 2 lakhs per financial year.
As you know by now, the National Pension System is one of the best pension options available in the country. Here’s a list of individuals who should consider investing in NPS -
An NPS account can be opened online by visiting either of the 3 Central Record Keeping Agencies (CRAs) empowered by the National Pension System. Here’s a brief outline of the steps that you need to follow to open an NPS account online.
Once you complete the OTP verification, you will receive your Permanent Retirement Account Number (PRAN) and your login credentials via email. You can use your credentials to log in and manage your NPS account.
The National Pension System offers excellent retirement benefits, including a lump sum amount and regular income at age 60. However, considering additional financial products like life insurance can provide a safety net for your family and leave behind a substantial inheritance.
PFRDA is a statutory body set up by the Government of India to regulate and develop the pension sector in India. An annuity pension is a type of pension in which the pensioner receives a fixed monthly income as per terms and condition of the plan
The relationship between PFRDA and ASPs (Annuity Service Providers) is that PFRDA is the regulator of the National Pension System (NPS), and ASPs are the entities that provide annuity services to NPS subscribers. When an NPS subscriber reaches the age of 60, they are required to annuitize at least 40% of their pension wealth. They can do this by purchasing an annuity from an ASP that is empanelled by PFRDA
You can select any of the annuity schemes offered by Annuity Service Providers (ASPs) registered with IRDAI and empaneled with PFRDA. HDFC Life is one of the registered ASPs for annuity issuance and further servicing.
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