The National Pension System is a pension scheme regulated by the Pension Fund Regulatory and Development Authority of India (PFRDA). It was initiated by the central government in 2004 for people to invest and reap returns for retirement. Initially, only the central government employees were eligible to invest in the NPS. Later in 2009, the PFRDA broadened its scope allowing all Indian citizens to benefit from investing in it. Besides, investments in NPS are eligible for tax deductions under Section 80C and Section 80CCD.

NPS is a market-linked pension account in which you can make regular contributions till you retire.
These investments are managed by professional fund managers. At age 60, you can withdraw 60 per cent of the corpus, but it is mandatory to buy an annuity with the remaining 40 per cent.
This annuity can help generate regular income after retirement.

Benefits and Features of NPS account

• Returns: For Tier I accounts, the minimum amount per contribution is ₹500. Moreover, you have to make a contribution of at least ₹1,000 in a financial year. There is no limit on the number of contributions in a financial year if you are a Tier I account subscriber. For Tier II accounts, the minimum amount per contribution is ₹250. There is no minimum balance requirement.
• Flexibility: You can change your fund manager if you are unhappy with the fund's performance. You will have to fill up a form for a fund manager change request. The form can be downloaded online or you can collect it from your nearest Point of Presence. You will have to pay a transaction charge for changing your fund manager. NPS accounts afford you flexibility - you can maneuver your investments across government bonds, corporate debt plans, stocks.
• Risk - returns stabilisation: At present, the maximum equity exposure in the National Pension System is 75%. If you are a government employee or if you are more than 60 years of age, it is capped at 50%. Also, once you attain 50 years of age, your equity component reduces by 2.5% each year. This ensures that the risk factor posed by equity market volatilities is softened in the long run.
• NPS provides the option of being an active investor and monitoring your investment and deciding how and where it should go. On the other hand, the automatic option allows the scheme to divide your funds appropriately through the 'auto' mode, based on your age and other defining factors.

Tax Benefits of Investing in NPS

Under Section 80CCD of the Income Tax Act, you can claim deductions against your contributions to the National Pension System. Tax deductions under Section 80 CCD (1) are available to all individuals irrespective of whether he/she is employed at a government or private organisation or is self-employed.

Section 80 CCD (1B) is a new subsection that was introduced in the year 2015. Under this, you can claim an additional deduction of ₹50,000 irrespective of whether you are salaried or self-employed for your contributions towards NPS. This deduction can be claimed over and above the maximum deduction of ₹1.5 lakh that can be claimed under Section 80 C. Thus, you can claim up to ₹2 lakh as deduction against your NPS investment.

NPS Withdrawal Rules

National Pension System withdrawal rules vary with different rules framed for various categories -

• If you are about to retire and are a government or private sector employee:You need to invest a minimum of 40% of the corpus in an annuity. The amount invested on purchasing annuity is exempted from tax but your annuity income is taxable. You can opt for a lump sum withdrawal of the balance which is exempted from tax. You can also postpone withdrawal till the age of 70. If the accumulated balance is less than ₹2 lakh you can withdraw it completely.
• If you are a government employee and have taken voluntary retirement:You need to invest a minimum of 80% of the corpus in an annuity. You can withdraw completely if the balance is less than ₹1 lakh.
• If you are a corporate sector employee who has taken voluntary retirement:
  1. You should have maintained the account for at least 10 years.
  2. You will need to purchase an annuity with at least 80% of the amount.
  3. You can opt for complete withdrawal if the balance is less than ₹1 lakh.
• In the event of a subscriber's death, irrespective of whether he/she was a government or private sector employee, the corpus is given to the nominee or legal heir.

NPS Partial Withdrawal Rules

• You can only opt for partial withdrawal for specific purposes such as children's education and marriage or to build a house or during medical emergencies.
• Three withdrawals are allowed during the tenure of your subscription. You will need to maintain a gap of at least 5 years between the two withdrawals except during medical emergencies.
• Upto 25% of the Tier I corpus can be withdrawn before the age of 60, and withdrawals are only allowed after three years. The amount withdrawn is exempted from taxes.

Annuity

• Once you reach the age of 60, you can opt for a lump sum withdrawal of your corpus, i.e., 60 per cent of the balance, and you can transfer the balance to your annuity service provider (ASP).
• 40 per cent of the accumulated surplus to your ASP to purchase the annuity. In case you opt for premature withdrawal, 80 per cent needs to be spent on the annuity.
• ASPs are life insurance companies appointed by the PFRDA who are responsible for providing pension to NPS subscribers for the rest of their lives. The NPS has no involvement in the transfer of your funds to your ASP, and you will need to choose the ASP to buy your annuity.

How to Open an NPS Account?

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(Account opening process is completely online, we will guide you through the whole process.)