NPS Tier 1 Account - Tax Benefit, Scheme, & How to Withdraw Online

What Is the National Pension Scheme Tier-1?

• It is a government-backed retirement-oriented investment scheme.
• Like other sovereign investment schemes like PPF, EPF, NSC (National Savings Certificate), SCSS (Senior Citizens Savings Scheme), etc., NPS Tier-1 is also covered by Section 80C of the Indian Income Tax Act 1961. Investors prefer investing in NPS Tier-1to save money for retirement and get tax benefits of up to INR 1,50,000 every financial year.
• Like EPF and PPF, NPS Tier-1 is an EEE instrument. The full form of EEE is Exempt-Exempt-Exempt. So, not only does NPS Tier-1 provide tax benefits at the time of investing, and the entire corpus and the withdrawal amount do not attract any tax.
• Investors can get 100% tax-free returns from NPS Tier-1. You can use the NPS Tier-1 calculator to get an estimate of the tax benefits.
• The Indian government introduced the National Pension Scheme (NPS) on 1st January 2004. The scheme was originally envisaged for government employees (except for armed forces personnel).
• In 2009, the government decided to extend the scope of the NPS to all Indian citizens between the ages of 18 and 60. Later, in 2019, the government further expanded the scope of NPS by allowing OCI and PIO card holders to open NPS Tier-1 accounts.
• In August 2021, the PFRDA increased the age of entry into the NPS from 65 to 70 years. So presently, any OCI (Overseas Citizen of India) and resident or non-resident Indian citizens can open an NPS Tier-1 account and defer it until they reach 75 years of age.
• NPS is managed and controlled by the PFRDA.
• PFRDA appointed Protean eGov Technologies Limited as the CRA (Central Recordkeeping Agency) for the NPS to smoothly implement this government-backed pension scheme.
• Besides preserving the records of subscribers, the CRA also cares for the administration and customer service of NPS subscribers. It is the CRA’s duty to assign a unique Permanent Retirement Account Number (PRAN) to all NPS Tier-1 subscribers and maintain the database of each PRA, besides recording the transactions in each PRA.

• NPS (Central Government)
• NPS (State Government)
• NPS (Corporate)
• NPS (All Citizens)

NPS Tier-1 - Scheme Info

• Default Scheme - In this scheme, investments will be made in the default investment schemes of SBI Pension Funds Pvt. Ltd., LIC Pension Fund Limited, and UTI Retirement Solutions Limited in the proportion specified by the PFRDA.
• **Scheme G **- In this scheme, 100% of an investor’s contributions will be made in Government bonds and instruments related to bonds.
• **Scheme LC 50 **- This is a life cycle fund in which equity investments are capped at 50% of the net asset.
• Scheme LC 25 - This is a life cycle fund in which equity investments are capped at 25% of the net asset value.

NPS Tier-1 - The Top Features

• You can open an NPS Tier-1 account upon attaining the age of 18. However, you must continue depositing into the account until the age of 60, after which you can withdraw your investment plus returns. Also, you can defer the maturity by another 15 years until reaching 75 years of age.
• Investors may withdraw money from their NPS Tier-1 accounts in the case of financial emergencies like hospitalisation, wedding, education, etc.
• Investments up to INR 1,50,000 in a financial year are eligible for tax deductions under Section 80C of the Indian Income Tax Act 1961.
• An investor can open only one (1) NPS Tier-1 account.
• Investors may close their NPS Tier-1 account by fulfilling specific terms and conditions.
• Investors can benefit from online Aadhar-based eKYC functionality for the registration of subscribers through the e-NPS platform.
• Subscribers from the Government sector can onboard online through e-NPS.
• Subscribers can change their investment choice or asset allocation (shifting between Active Choice and Auto Choice or changing the allocation ratio) up to four times every financial year.
• NPS is a transparent investment instrument since subscribers can track their fund value and investment status whenever they want.
• The PRAN allotted to a subscriber is unique and remains valid irrespective of how often the subscriber switches employers or offices.
• NPS Tier-1 investment is 100% safe since it is actively monitored by the PFRDA, which comes under the Ministry of Finance, Govt. of India.
• Since the account maintenance charges of NPS Tier-1 are relatively lower than those of conventional mutual fund schemes, investors can earn extra income by investing in NPS. Moreover, the subscriber’s wealth enjoys compounded growth.

NPS Tier-1 - Pension Funds

• SBI Pension Funds Private Limited
• LIC Pension Fund Limited
• UTI Retirement Solutions Limited
• HDFC Pension Management Company Limited
• ICICI Prudential Pension Funds Management Company Limited
• Kotak Mahindra Pension Fund Limited
• Aditya Birla Sun Life Pension Management Limited

NPS Tier-1 - The Account Opening Process

Offline Mode

• Visit your nearest Point of Presence - Service Provider (PoP-SP). PoP-SP refers to the network branch of NPS. The PoP-SP is empowered to accept, verify, and process NPS application forms. Any citizen between 18 and 65 can open an NPS Tier-1 account.
• Ask for the PRAN application form from the PoP-SP. You can also download the application form online from the NPS website.
• Fill out the application form by entering accurate details about your personal profile and scheme preferences. Remember to provide your signature, photograph, and KYC (Know Your Customer) documents.
• Submit your PRAN application form to the PoP-SP. You will receive your PRAN at your registered postal address from the CRA.
• You can also track your application status by quoting the receipt number of your PRAN form.
• After getting the PRAN card, deposit the first contribution amount and submit the slip to your PoP-SP.

Online Mode

• Visit the e-NPS’s official website. Any Indian citizen and Non-Resident Indian (NRI) between 18 and 70 can open an NPS Tier-1 account. You can also use e-NPS’s official website to make the initial and subsequent contributions to your NPS Tier-1 account.
• Before using the online registration system, ensure that you have an active mobile number, a valid email ID, and a bank account number with internet banking enabled.
• Click on ‘National Pension System’ and ‘Registration.’
• Under ‘New Registration,’ choose the appropriate options. You may register with ‘Aadhar online/ offline e-KYC,’ ‘Permanent Account Number (PAN),’ or ‘Document with DigiLocker.’ Also, select the applicant type, status of applicant, account type, and option, and enter your Aadhar number.
• After entering your Aadhar number, click on ‘Get OTP’ and enter the OTP in the appropriate box.
• After logging in, choose ‘Tier-1 account’ and select the fund manager.
• Select the ‘Auto’ or ‘Active’ mode.
• Provide nominee details and share.
• Upload the KYC documents, such as PAN card, Aadhar card, etc.
• Complete the registration by paying INR 500.
• Your PRAN will get generated and sent to you on your email ID.

NPS Tier-1 - Mandatory Investments

• Initial Contribution - INR 500
• Subsequent Contribution (Monthly) - A minimum of INR 500
• Minimum Contribution (Yearly) - INR 1,000
• Minimum No. of Contribution (Yearly) - One (1)

NPS Tier-1 - Withdrawal Norms

• Normal Superannuation - The subscriber must utilise 40% of the available funds to purchase an annuity that will be used to provide a monthly pension. The subscriber can withdraw the remaining 40% on superannuation. However, if the total amount in the subscriber’s NPS account is less than INR 5 lakh, they can withdraw the full amount.
• Death - If the subscriber dies, the subscriber’s spouse must utilise a minimum of 80% of the accumulated pension fund to purchase an annuity that will be used to provide a monthly pension to the subscriber’s spouse. The remaining 20% can be withdrawn by the subscriber’s nominee or legal heir. However, if the total amount in the subscriber’s NPS account is less than INR 5 lakh, they can withdraw the full amount.
• Premature Exit - If a subscriber decides to close their account prematurely, they have to utilise 80% of the accumulated pension fund to purchase an annuity that will be used to provide a monthly pension to the subscriber. The subscriber can withdraw the remaining 20%. However, if the total amount in the subscriber’s NPS account is less than INR 2.5 lakh on the resignation date, they can withdraw the full amount.

NPS Tier-1 - Tax Benefits

• According to the Income Tax Act’s Section 80CCD(1), you can claim tax deductions of up to INR 1.5 lakh every financial year. The tax exemption will be a minimum of 10% of the subscriber’s total income or salary.
• Section 80CCD (1B) provides an extra tax deduction of up to INR 50,000. So, the actual tax benefits of NPS Tier-1 can go up to INR 2 lakh every financial year.
• Although the returns from NPS Tier-1 are exempt from taxes, the annuity received by subscribers is taxable.
• Salaried subscribers can get tax benefits of 10% of their basic salary and DA (Dearness Allowance) if their employer is a co-contributor to NPS Tier-1.
• The 60% pension fund a subscriber receives after the mandatory lock-in period is exempt from taxes.
• Any partial withdrawal from an NPS Tier-1 account is also exempt from taxes.

Frequently Asked Questions (FAQs)

What is NPS Tier-1?

What is the minimum and maximum investment amount in NPS Tier-1?

What are NPS Tier-1 tax benefits?

What are the rules for partial withdrawal from an NPS Tier-1 account?