National Pension Scheme (NPS)

Reviewed by Vishnu | Updated on Aug 27, 2020

What Is the National Pension Scheme?

The National Pension Scheme (NPS) is a government-sponsored voluntary retirement plan for Indian citizens. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and the Central Government. The NPS allows individuals to invest in a pension scheme regularly during the course of their employment period.

On maturity at the time of retirement, NPS subscribers can withdraw a percentage of the corpus generated as a lump sum amount. The remaining amount will be utilised to purchase an annuity post through which the subscribers will receive a pension every month after retirement.

Benefits of NPS

Since a certain portion of the contribution made towards NPS is directed towards equities, the returns generated are generally higher than that of most conventional tax-saving instruments. Also, the NPS has registered an average annualised return of 8%-10% over the last decade.

NPS subscribers are eligible for tax deductions up to Rs 1.5 lakh on the contributions made by the employer and the employee under Section 80CCD(1) and 80CCD(2) of the Income Tax Act, 1961.

NPS subscribers are also eligible for an additional deduction of up to Rs 50,000 under Section 80CCD(1B). This is above the Rs 1.5 lakh deduction allowed under Section 80C of the IT Act, 1961.

How to Open an NPS Account?

The PFRDA allows individuals to subscribe to the NPS both online and offline.

Offline Mode

Step 1: Approach the nearest PoP (Point of Presence) and collect the NPS subscriber form. PoP can be a bank as well.

Step 2: Submit the duly filed subscriber form along with the KYC documents at the PoP.

Step 3: The bank will send the Permanent Retirement Account Number (PRAN) details once an initial investment has been made towards the pension scheme.

Step 4: You should be able to operate your NPS account with the PRAN and password included in the welcome kit.

Online Mode

Step 1: Visit the official NPS website (enps.nsdl.com)

Step 2: Open an account online and link it to your PAN, Aadhaar and mobile number.

Step 3: Validate the account with the one-time password (OTP) received on your registered mobile number.

Step 4: A PRAN will be generated once the validation is complete.

Step 5: Use the PRAN and password to access your NPS account.