NPS - National Pension System

The National Pension System is a long-term and voluntary investment scheme that helps its subscribers after retirement.

NPS Information

Tenure Can invest till the age of 65 years
Interest rate 9% to 12% p.a.
Investment Amount Starting at Rs.250
Maturity Amount Depends on the investment amount

Table of Contents

Introduced in 2004, The National Pension System (NPS) was previously available only for the Central Government employees. However, it was made available for all Indian citizens in 2009. The scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

For more information, Check out related articles NPS Account , NPS Calculator, NPS Interest Rate & NPS withdrawal Rules

Procedure to open a NPS account

Individuals can open an NPS account both online and offline. Given below is the procedure to open an NPS account both online and offline:

  • Online procedure:

    • You will be required to follow the steps mentioned below to open an NPS account online.

    • Visit the eNPS website (https://enps.nsdl.com/eNPS/NationalPensionSystem.html) to register online.
    • Your mobile number, Aadhaar number, and Permanent Account Number (PAN) must be linked with the NPS account.
    • Validate the registration using the OTP which will be sent to your registered mobile number.
    • On completion of registration process, you will receive a Permanent Retirement Account Number or PRAN. The PRAN can be used in the future to log in to your profile.
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  • Offline procedure:

    • You will be required to follow the steps mentioned below to open an NPS account offline.

    • Visit the nearest Point of Presence (PoP) centre, a bank, or a post office to open an NPS account.
    • You will have to submit your Know Your Customer (KYC) documents along with a duly filled up and signed application form.
    • The PoP centre will send you a PRAN once you have made your first investment.
    • The PRAN along with a password will be present in the welcome kit. The PRAN and password will be required to operate your account.
    • You will also be required to pay a one-time registration fee of Rs.125.

NPS Withdrawal Process

  • Exit rule and early withdrawal under NPS: It is vital that subscribers make investments towards the scheme until they reach 60 years of age as NPS is a pension scheme. However, under certain circumstances, subscribers can withdraw up to 25% of the invested amount if they have invested towards the account for 3 years. Given below are the different cases under which early withdrawal is allowed:
    • In case the children of the subscriber are getting married
    • For higher studies
    • For buying or building a house
    • In case of medical treatment of the subscriber or his/her family members

NPS Withdrawal is possible for a maximum of 3 times under the scheme and there must be a minimum gap of at least 5 years between withdrawals. The early withdrawal process is applicable to only Tier-I account. Under Tier-II accounts, the entire investment can be withdrawn.

  • Withdrawal after attaining the age of 60: The entire investment made towards the scheme cannot be withdrawn once the subscriber reaches the age of 60 years old. It is mandatory that subscribers retain at least 40% of the investment in order to receive a pension. The pension is given to subscribers from an insurance firm that is registered under the PFRDA. The remaining 60% can be withdrawn and no tax needs to be paid on it.

Documents required for withdrawal NPS amount

Given below is the list of documents that must be submitted in order to withdraw the amount from NPS:

  • Withdrawal form
  • Original PRAN card
  • Proof of identity that has been attested must be submitted
  • A cancelled cheque must be submitted

Union Budget 2020 Highlights regarding NPS

As per the Budget 2020 that was announced by the Minister of Finance and Corporate Affairs, Nirmala Sitharaman, a proposal has been made to introduce a limit of Rs.7.5 lakh for any contributions made by the employer towards the National Pension System, Pension Fund, and superannuation fund.

The Finance Minister further added that any amount that is contributed beyond this limit will be taxable. This move will likely impact employees who have a high basic salary. Under the current rule, any contributions made by the employer towards the NPS and the Pension Fund are tax exempt without any specific ceiling.

For example, in case your basic salary is Rs.35 lakh, the employer’s contribution could be Rs.9.20 lakh. This is inclusive of the Rs.1.5 lakh towards the superannuation fund, Rs.4.2 lakh towards the Pension Fund and Rs.3.5 lakh towards NPS.

Different types of NPS accounts

Tier-I and Tier-II are the two types of NPS accounts. While the Tier-I is a mandatory account, the Tier-II is a voluntary account. The differences between the two accounts are mentioned in the table below:

Category Tier-I account Tier-II account
Maximum contribution No limit to the amount of contribution No limit to the amount of contribution that is made towards the account
Minimum contribution Rs.500 or Rs.1,000 in a year must be made towards the account Rs.250 must be made towards the account
Tax deductions Subscribers are eligible for a tax deduction of up to Rs.2 lakh. Subscribers are not eligible for tax deductions under the account.
Withdrawals that are allowed Subscribers cannot withdraw the investments made towards the account until they retire. Subscribers will be able to withdraw the contributions made towards the account.
Status It is a mandatory account for subscribers who register for an NPS account. Subscribers can open the account on a voluntary basis.

The NPS account is mandatory for all Central Government employees. They will have to contribute 10% of their basic salary towards NPS. The NPS scheme is voluntary for all other Indian citizens.

Differences between NPS & other Tax saving schemes

Some of the other schemes that provide NPS tax benefits under Section 80C of the Income Tax Act are Tax-saving Fixed Deposits (FD), Public Provident Fund (PPF), and Equity Linked Savings Scheme (ELSS). Given below is the table where the difference between NPS and the schemes mentioned above are compared:

Type of scheme Rate of interest (p.a.) Fixed period of investment Risks of the scheme
NPS The expected rate of interest is between 8% to 10% Investment towards the scheme is till retirement The returns on investments are market-related.
FD The rate of interest is guaranteed and is from 7% to 9%. 5 years The scheme is risk-free.
PPF The rate of interest is guaranteed and is 8%. 15 years It is a risk-free scheme.
ELSS The expected rate of interest is from 12% to 15%. 3 years The returns depend on the market.

Even though the returns that are generated from the scheme may be higher than PPF and FD, however, there are no tax benefits on maturity. Individuals who withdraw 60% of the total investments that have been made towards the account, should know that 20% of that amount is taxable. However, the taxable amount may vary.

National Pension Scheme
National Pension Scheme

NPS Features

The main features of the scheme are mentioned below:

  • Eligibility: Indian citizens who are between 18 years and 65 years of age and do not come under any NPS sector are eligible to invest in NPS scheme.
  • Cost for registration: Initially, individuals must pay Rs.500 (exclusive of taxes) towards registering for an NPS account.
  • Contribution towards NPS: The minimum contribution that must be made towards the scheme is Rs.500 (not including taxes). There is no upper limit to the maximum contribution that can be made. However, the minimum contribution that can be made in a Tier-I account is Rs.1,000 in a financial year.
  • Number of contributions: Subscribers must make at least one contribution in a financial year.
  • Modes of payment: Payments can be made in the form of Demand Draft (DD), cheque, and cash.
  • Change of scheme and fund manager: In case subscribers are not happy with the overall performance of the scheme, they are allowed to change the fund manager or the pension scheme. Both the Tier-I and the Tier-II accounts come with these options.

Tax benefits under NPS

In case you wish to make any additional contributions towards the Tier I account, you can visit enps.nsdl.com or visit any Point of Presence – Service Providers (POP-SP). The transaction statement can be submitted as proof of investment.

As per the proposal made by the government in last year’s budget, the income tax exemption limit was to be increased from 40% to 60%. Under the current provisions, in case any payment is made by the NPS Trust to the subscriber for closing the account, 40% of the amount is exempt from tax.

A proposal was also made by the Finance Minister to increase the government’s contribution to its employees from 10% to 14%.

According to the current provisions, under Section 80 CCD (1) of the Income Tax Act, the NPS account holder can claim tax benefits of up to 10% of his/her gross income. However, a maximum of Rs.1.5 lakh can be claimed as tax benefits under Section 80 CCE of the Income Tax Act. Under Section 80CCD (1B), an additional amount of Rs.50,000 can be availed as tax benefits for any contributions made towards the scheme.

NPS Rules of allocation

Investments are made in various schemes by the NPS. Investment is made towards equity under Scheme E of the NPS. Subscribers can contribute up to 50% of their total investments towards equities. Active choice and auto choice are the two different options of investments that are available.

  • Active choice: Under active choice, the scheme and the type of split can be decided by the subscriber.
  • Auto choice: Under auto choice, depending on the subscriber’s age, the option decides the risks of the investment. Therefore, less risky and more stable investments are chosen if the subscriber is older.

FAQ’s on NPS

  1. Following retirement, are employees engaged in government service eligible for leave encashment as per the guidelines of the NPS?

    2. No. Leave encashment is not allowed as per the guidelines of NPS laid down by the CCS and does not count as a component of the benefits available to the employee after retirement.

  2. What is the reason behind the compulsory utilization of a minimum of 40% of the accumulated pension funds to buy annuities after retirement?

    3. The main reason behind this move is to ensure employees in government service will still obtain a regular and stable income every month following their retirement.

  3. Which body is responsible for the calculation of interest with regards to the NPS?

    4. The interest is calculated by the The Pension Accounting Office, who is the official body appointed for this particular task.

  4. Which agency or office will be responsible for contribution deductions In the event of the transfer of an employee during the course of the month?

    5. The office that draws the salary of the subscriber for the maximum amount of time during the month will be responsible for the deduction of contribution towards the NPS.

  5. What are the KYC documents required to enroll for NPS through SBI?

    6. The following documents are required to be submitted at the time of making the application:

    • Subscriber registration form
    • Photo ID proof
    • Proof for Date of Birth
    • Proof of residence
  6. What are the different modes of payments available with SBI Pension Funds Pvt. Ltd.?

    7. The following modes are accepted by SBI for NPS premium payments:

    • Direct payment at an SBI Life branch
    • Through standing order on credit card
    • Online payments
    • Electronic Clearing Service
    • Payments through SBI Life’s mobile app
    • Through National Automated Clearing House (NACH)
    • Through POS terminals at authorized SBI Life branches
  7. How to check the status of your NPS account in SBI?

    8. Simply login to the SBI Life customer portal and fill in details such as Customer ID and NPS policy number to view your current status.

  8. What are the minimum contribution amounts for Tier I and Tier II accounts?

    9. The minimum contribution amount for Tier I accounts is Rs.500 per month and that for Tier II accounts is Rs.250 per month. Subscribers should also maintain a minimum balance of Rs.6000 for Tier I and Rs.2000 for Tier II at the end of the year.

  9. How does SBI settle the NPS claims?

    10. You need to submit the settlement form along with the essential documents for claim settlement at the branch where you maintain your NPS account. For details on claim settlements you can send an email to claims@sbilife.co.in. The final decision on claims will be based on the disclosures made in the proposal form by the subscriber.

  10. Who provides annuity on withdrawal or maturity under NPS?

    11. The insurance companies licensed by the IRDA and authorized by the PFRDA act as the annuity service providers to NPS subscribers.

  11. Is NPS an easily accessible system of long term investments?

    12. NPS is a cost effective, flexible and portable retirement savings scheme in which the wealth accumulated depends on the contributions made by the individual.

  12. How many subscribers does NPS have?

    13. The total number of NPS subscribers as on 30 Dec, 2016 is 1,02,76,250.

  13. What are the features of NPS app?

    14. Using the NPS app, you can raise a request for transaction statement for the particular fiscal year. You can also view the details of scheme wise units and update your contact information.

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News About NPS

  • e-KYC to be started for NPS subscribers

    The Pension Fund Regulatory and Development Authority (PFRDA) has received approval to implement online Know Your Customer (e-KYC services) for subscribers of the National Pension System (NPS) and Atal Pension Yojana (APY) scheme. The permission was granted from the Department of Revenue. This will simplify the account opening process for subscribers. While NPS is geared towards the organised sector, APY is geared towards the unorganised sector. There will be paperless on-boarding, OTP-based authentication, e-sign-based authentication, online enrolment for government employees, video customer identification for remote on-boarding, and other features implemented soon.

    09 Feb 2021

  • Subscribers of the NPS scheme will be able to choose to opt-out through an offline process

    The Pension Fund Regulatory and Development Authority has given a proposal to offer subscribers of the National Pension Scheme an additional option to exit from the scheme through self-authorisation.

    For this process, the subscribers who have a corpus of up to Rs.10 lakh will have to provide their Aadhaar details offline to exit from the scheme. The subscribers can also opt to exit via an online process by visiting the NSDL website or offline, by filling up with the form of physical withdrawal and submitting it to the respective Nodal Officer.

    29 Dec 2020

  • PFRDA will start to separate from NPS in next fiscal year

    The Pension Fund Regulatory and Development Authority (PFRDA) will start separation of the National Pension System (NPS) Trust from itself in the next fiscal year. The proposal to separate the pension regulator from the NPS was put forward by the government in the Union Budget for 2019-20. This was to address issues of conflict of interest between the two. A deadline of 31 March, 2021 has been set for a consultancy to start the process. The consultancy would examine and recommend changes in the structure of the organisation, requirements for technological systems, responsibilities, and segregation of responsibilities and roles of the NPS Trust. It will also have to identify the specific areas of inter-linkages between the NPS Trust and the PFRDA.

    19 Nov 2020

  • Now subscribe to NPS via video KYC

    The Pension Fund Regulatory and Development Authority (PFRDA) has allowed registered intermediaries to use Video-based Customer Identification Process (VCIP) to make the process to onboard the National Pension System (NPS) simple, faster and cost-effective. The verification of the subscriber can be done without the physical presence before the Point of Presence (PoP). This move will not only help in expanding the reach of NPS due to the account opening being paperless, it will also help in speedy account closure as well.

    The option for VCIP will be available to NPS subscribers in addition to the existing options including OTP or eSign-based onboarding, Aadhaar based onboarding through offline channels, e-nomination and e-exit for eNPS subscribers.

    03 Nov 2020

  • Pension scheme with minimum assured returns to be launched by PFRDA in 2022

    The Pension Fund Regulatory and Development Authority (PFRDA) will launch a new pension scheme that guarantees minimum assured returns from FY22. This was announced by the organisations’s chairman, Supratim Bandyopadhyay. As of now, the National Pension Scheme (NPS) is market determined and based on defined contribution. Minimum returns are only offered by the Atal Pension Yojana (APY), which is under the umbrella of the NPS, and is aimed at workers from unorganised, low-income sectors.

    23 Oct 2020

  • 12% NPS return delivered in one year

    The National Pension Scheme is now becoming a common choice for a lot of Indians as they are giving out impressive returns. The Tier-II account of the NPS had also outperformed most of the fixed-income investments in the past. With returns of 11.89%, around 12%, over the past one year, Scheme G of NPS Tier II has also outperformed the liquid debt mutual funds. It has also outperformed the savings bank fixed deposits.

    22 Oct 2020

  • Access your National Pension System account from your house

    If you are looking to open a National Pension System account, you can do this from your house. The Development Authority (PFRDA) and Pension Fund Regulatory have now enabled a video-based process for customer identification. This has been done to facilitate on-boarding, exit and withdrawals for all NPS subscribers.

    PFRDA has been launching a lot of new processes for subscriber authentication for National Pension System. These are offline Aadhaar-based on-boarding, and OTP/ eSign based onboarding. This also includes e-nomination, e-exit for eNPS subscribers and also, third party reliance for KYC.

    13 Oct 2020

  • NPS G-sec fund touches double digits for the first time in over 5 years

    The National Pension System’s (NPS) government security funds turned in with impressive numbers at a time when other funds are not having the best of times.

    All NPS fund managers’ scheme G (Tier I account) returns have beaten CCIL All Sovereign Bond TRI benchmark across three and five-year periods, according to a data from Value Research. 9.22% to 10.68% annually over three years have been delivered by G-sec funds as compared to the benchmark’s 9.13% returns during the same time period.

    LIC Pension Fund was the biggest winner in this category, as it clocked double-digit return of 10.68%. The next funds to impress were SBI Pension Fund and ICICI Prudential Pension Fund, with 9.91% and 9.67% returns respectively over a three-year period. On the bottom of the list was UTI Retirement Solutions after it recorded returns of 9.22%. However, the fund still managed to beat the benchmark.

    28 Sept 2020

  • PFRDA says total assets under management of National Pension Scheme and APY approaching a corpus of Rs.5 lakh crore

    The Chairman of Pension Fund Regulatory and Development Authority (PFRDA) has stated that the total assets under management of the National Pension System (NPS) and Atal Pension Yojana (APY) is approaching towards a corpus of Rs.5 lakh crore. Speaking at the 22nd CII Insurance and Pensions Summit, he stated that 83 percent of the total assets are from central and state government employees.

    As per the latest data, the total number of subscribers for the schemes stood at 3.68 crore. The PFRDA chairman also added that APY has seen a good growth in the number of new subscribers. During the period between April and August, the scheme saw about 2 million new subscribers' while in the first 15-16 days of September another 4 lakh were added.

    22 Sept 2020

  • NPS contributions see an increase of over 6 percent in the first quarter of the first fiscal

    While thousands have lost their jobs because of the lockdown to contain the spread of coronavirus, contributions to the National Pension Scheme (NPS) recorded an increase of over 6 percent in the first quarter of the current fiscal. Official data have highlighted that the subscriber base of the scheme saw an increase of 1.5 percent since the start of the April. As per an official of PFRDA, new additions and increase in contributions can be attributed to the fact that the government extended tax incentives twice for 2019-20 during the pandemic.

    As per the official data, total contributions under the scheme stood at Rs.3.38 lakh crore. Withdrawals from the scheme fell by 8 percent as it allows withdrawal of only 25 percent of the contributions at any time.

    19 Sept 2020

  • NPS equity funds are lagging behind Nifty 50 TRI

    The National Pension System (NPS) fund managers’ schemes E (equity) have been underperforming. The equity funds stand below Nifty 50 Total Return Index (TRI). This has been the case for the past three years. Even after a five-year timeframe, it looks like only one fund had outperformed the benchmark index. The schemes in total have delivered 2.09% to 4.86% returns on an annual basis when compared to the 5.93%. The large-cap mutual fund category had delivered 4.47% in the three-year time period.

    17 Sept 2020

  • PFRDA-regulated NPS likely to cross AUM of Rs.5 lakh crore by September

    Speaking at FICCI’s 21st Annual Insurance Conference, PFRDA chairman has stated that assets under management (AUM) of NPS is likely to cross Rs.5 lakh crore by the end of September. As per Section 80CCD(1B), investors are allowed a deduction on the amount contributed towards NPS of up to Rs.50,000. Currently, under NPS, at least 40 percent of the accumulated pension wealth of the subscriber needs to be utilized for the purchase of an annuity, providing for the monthly pension to the subscriber, and the balance 60 percent is paid as a lump-sum. He added that the Atal Pension Yojana (APY) is also doing well as more than 2 million customers have joined the scheme in the current financial year despite lockdown and these challenging times.

    It must be noted here that though there has been some awareness about pension products in the country, the overall coverage has remained low. As per the Melbourne Mercer Global Pension Index, India is ranked 32 out of 37 countries. The report shows that the Indian index value have increased to 45.8 in 2019 from 44.6 in 2018.

    30 Aug 2020

  • PFRDA working on a new pension scheme

    The Pension Fund Regulatory and Development Authority (PFRDA) is working on a new pension scheme as per its chairman. The authority is working on a minimum assured return-based pension scheme and is in talks with pension funds and actuarial firms to work out the modalities. He stated that under the PFRDA Act they have the mandate to launch a minimum assured return scheme. He added that they will give out the new product on their own unlike National Pension Scheme (NPS) and Atal Pension Yojana (APY) which are created in consultation with the (Finance) Ministry.

    It must be noted here that PFRDA administers two government pension fund schemes known as NPS and APY. While NPS is for both central and state government employees, autonomous bodies and corporate organisations, APY is targeted at the unorganised sector.

    30 Aug 2020

  • National Pension Scheme corpus may reach Rs.6 trillion within a year

    During the period from April to July 2020, there was a 20% growth in contribution from the government sector in the National Pension Scheme (NPS), in comparison to the same period the previous year. There was a growth of 50% in inflows from the private sector into the NPS for the same period as compared to the previous year. There was 36% more inflow from the retail sector into the Assets Under Management (AUM) during the same period as compared to the previous year. There was a total contribution of Rs.4,841 crore by both retail and private sectors towards NPS during this period, whereas for the same period last year it was Rs.3,328 crore. The overall inflow for the same period was Rs.28,531 crore whereas for the same period last year it was Rs.23,287 crore. Rs.42 crore was withdrawn during the same period this year.

    12 Aug 2020

  • Allocation of National Pension Scheme reduces in June quarter

    There was a sharp decline in the number of private sector firms that contributed to the National Pension Scheme (NPS) during the June quarter of 2020. This was due to the impact of the Covid-19 pandemic that slowed down the economy drastically. At the same time, there was an increase in withdrawals from the NPS due to the same reasons. The withdrawals in the period from April to July 2020 amounted to Rs.62 crore. The total inflow during the same period was Rs.30,000 crore. The withdrawals were done by both private and government sectors. This was in the aftermath of the special Covid-10 partial withdrawal scheme of the NPS which permitted customers to withdraw up to 25% of their funds that was invested with the NPS. This was availed by many customers in order to help them tide over the economic crisis that was the result of the Covid-19 pandemic. In terms of the number of investors, the growth in the NPS sector has been flat.

    10 Aug 2020

  • NPS Tax benefits under Section 80CCD (2) can still be claimed under new tax rates

    In case individuals switch to the new tax regime that has been proposed in Budget 2020, they will forego most of the tax exemptions that are allowed under Section 80C of the Income Tax Act.

    However, in case of any contributions made towards the NPS account, individuals can still claim tax benefits under Section 80CCD (2) of the Income Tax Act. According to the Finance Bill, deductions under sub-section (2) of Section 80CCD and Section 80JJAA can still be claimed. If the employer is contributing towards the NPS scheme, tax benefits of up to 10% of the basic salary and dearness allowance can be claimed under Section 80CCD (2). In the case of Central Government employees, the limit is 14% of the employee’s salary. Employees can restructure their salary and opt for the tax deduction in case the employer allows it. Under the new tax regime, seven tax slabs have been introduced. In case you opt for the new tax regime, tax benefits of up to Rs.50,000 cannot be claimed under Section 80CCD (1B) of the Income Tax Act for any contributions made towards the Tier-I account. However, a proposal has been made where the employer cannot contribute more than Rs.7.5 lakh towards the NPS, EPF, and superannuation account. The employee will be taxed in case the contributions exceed that amount.

    15 Feb 2020

  • Subscribers can now contribute up to Rs.50,000 to NPS online

    ‘'Lite’' subscribers to National Pension System (NPS) can now use the e-NPS Lite facility to make payments online which will be charged at Rs.3.75 per transaction. This will be paid to NSDL-CRA with charges for the payment gateway. Only Lite subscribers with valid and registered mobile numbers can avail this facility. Those who have not yet registered their mobile numbers to their account can request for it to be done at the Point of Presence (PoP) and then start making online payments to their account. To open an NPS Lite account, eligibilty is being a citizen of India between the ages of 18 and 60. NPS Lite, also called Swavalamban, a contribution of Rs.1,000 per year was made by the government of India for five years to each Lite-Swavalamban account that was opened in 2010-2011, 2011-2012, and 2012-2013.

    13 Jan 2020

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