The National Pension Scheme (NPS) is a contribution-based, voluntary retirement planning scheme under the jurisdiction of the Pension Fund Regulatory and Development Authority (PFRDA). It is a long-term investment product that helps build a corpus until retirement. The scheme is open to everyone above 18 working in the government, private, or unorganised sectors, except the armed forces. Therefore, it is a valuable scheme for anyone who wants to receive a regular pension post-retirement.
Here is a complete guide to how to NPS apply and other National Pension System Scheme details you must know before opening an NPS account.
Eligibility to Open an NPS Account
Eligibility to open an NPS account involves specific criteria regarding age, citizenship, and other factors, as mentioned below:
- Every Indian citizen, including residents and NRIs
- Age between 18 and 70
- Application compliance with KYC requirements
- Legal capacity to make contracts according to the Indian Contract Act
- Excluding Overseas Citizens of India, Hindu Undivided Families, and Persons of Indian Origin
- An active bank account with a net banking facility, email ID, and mobile number
Documents Required to Open an NPS Account
Opening an NPS account requires specific documents for verification, including identification and address proof, as mentioned below:
- PAN card
- A recent photograph
- Proof of address
- Bank account details
- Original and scanned copy of the duly filled NPS application form.
- KYC documents as per regulatory requirements.
Who Should Open an NPS Account?
The National Pension Scheme is a useful retirement planning scheme that allows early retirement planning with low-risk tolerance. The pension income received post-retirement is undoubtedly beneficial, especially for private sector employees without pension plans. Salaried employees who wish to maximise their tax savings through Section 80C deductions should also consider opening an NPS account immediately.
The NPS is an ideal choice for anyone looking to build a substantial retirement corpus, secure a regular pension income, and enjoy tax benefits. Whether you are a private sector employee, a self-employed individual, or someone looking to plan early for retirement, the NPS provides a strong and flexible framework to achieve your financial goals.
Step-by-Step Guide to Open an NPS Account
The PFRDA regulates the NPS application procedure through both offline and online channels. There are the steps to follow:
- Offline Process
- Visit your nearest POP (Point of Presence) registered by the PFRDA, such as the ICICI Bank branch.
- Request an NPS application form and fill in the required details.
- Attach KYC documents with the application.
- After verifying your details and receiving the initial investment amount, the POP issues a PRAN (Permanent Retirement Account Number). It provides you with a welcome packet containing your number and password for account management.
- Online Process Through a Bank’s Net Banking
- Log in to your bank’s net banking account.
- Select Investments and Insurance and click ‘National Pension System’.
- Fill in the necessary details regarding your investment, identity, nominee, etc.
- Upload your documents and signature.
- Confirm the details and submit the application.
- Online Process through Mobile App
- Download and log in to your bank’s mobile app like the iMobile Pay app by ICICI Bank.
- Select Invest and Insure and click ‘Instant NPS’.
- Fill in the necessary details regarding your investment, identity, nominee, etc.
- Upload your documents and signature.
- Confirm the details and submit the application.
Difference Between a Tier I and Tier II Account
NPS accounts can be of two types: Tier I and Tier II. When you open an NPS account, Tier I will be your default account type. Later, you can explore the features and benefits of a Tier II account and switch to it if you want. Below are the National Pension Scheme details for the two account types:
| Particulars | Tier I NPS Account | Tier II NPS Account |
| Status | Default NPS account | Voluntary NPS account |
| Withdrawal Rules | Permitted after three years of account opening but with limitations regarding the amount and purpose | Permitted without any restrictions |
| Minimum Amount for Account Opening | Rs. 500 | Rs. 1,000 |
| Lock-in Period | Until retirement | No lock-in period |
| Tax Benefits | Rs. 1.5 Lakh under Section 80C and an additional Rs. 50,000 under Section 80CCD(1B) | No tax exemptions on Tier II contributions for non-government employees. However, government employees can claim a tax benefit of Rs. 1.5 Lakh under Section 80C after the 3-year lock-in period is over. |
| Tax on Maturity Amount | 60% of the corpus withdrawn at maturity is tax-exempted | The withdrawn amount becomes your income and is liable to taxes |
| Transferability | EPF funds are transferable to a Tier I NPS account | No such transfer is permitted |
Withdrawal Rules
The National Pension Scheme (NPS) offers several options for withdrawal, each governed by specific rules and regulations designed to ensure a secure and planned retirement. Here are the key withdrawal rules for NPS accounts:
- At maturity, you can withdraw 60% of the accumulated corpus in a lump sum and purchase an annuity with the remaining 40%. This annuity purchase generates income and provides you with a monthly pension post-retirement.
- In case of a premature withdrawal, you can withdraw only a small percentage of the accumulated corpus and purchase an annuity with the remaining amount.
- Subsequent to your demise, your legal beneficiary can withdraw 100% of the accumulated corpus in a lump sum.
Conclusion
The National Pension Scheme is an important retirement plan to ensure financial security after retirement. The Indian government launched this scheme in 2004 for government employees only. However, now that it is open to everyone, you must take advantage of the scheme and secure your twilight years.
Complete the NPS application process through your bank’s website or mobile app to avail of the scheme benefits and secure a fruitful financial future.
Disclaimer: This article is for general information purposes only and should not be construed as professional financial advice. Always consult an expert before making any investment. The publication does not validate the accuracy of the returns.
