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It was launched to boost your retirement income and help you save tax. It allows you to plan for a financially secure retirement with systematic savings in a planned way.
How to open an NPS account
- Go to the official website of NPS: https://enps.nsdl.com
2. Click on ‘National Pension System’ and select ‘Register’.
3. Enter your details such as your Aadhaar card, PAN card, or DigiLocker details.
4. Click on ‘individual subscriber’ and select your account type: Tier 1 is mandatory for pension benefits, while Tier 2 is optional for extra savings and allows withdrawals at any time.
5. An OTP will be sent to your registered mobile number for verification.
6. Choose your investment preference by deciding how your NPS contributions will be invested. Auto Mode investments are done automatically based on your age, while in Active Mode, you have control over your investment.
7. Once all the formalities are done, upload your documents and make payment. The minimum contribution per year for Tier 1 is ₹500 and ₹1,000 for Tier 2.
8. Once payment is successful, you get a Permanent Retirement Account Number (PRAN).
How does an NPS account work?
NPS account holders can make regular contributions to their pension account throughout their employment period.
After investing until retirement, they can withdraw a portion of the funds, approximately 60%, and put them to good use. The remainder, ideally 40% of the entire money invested, should be utilised to buy an annuity and to provide the basis for a steady income after retirement.
Under the unfortunate circumstances of the death of the account holder before 60 years, the entire money is to be paid to the nominee or the legal heir of the account holder.
NPS offers significant tax benefits to encourage long-term retirement savings. Under Section 80 CCD (1), you can claim a tax deduction of up to ₹1.5 lakh on your contributions, which is included in the overall limit of Section 80C.
Additionally, Section 80CCD(1B) allows an extra deduction of ₹50,000, taking the total potential deduction to ₹2 lakh per year.
If your employer contributes to your NPS, Section 80 CCD (2) exempts them from taxes (up to 10% of your salary for private employees and 14% for government employees).
Finally, when you retire, 60% of your NPS corpus is tax-free, with the remaining 40% being used for a pension (taxable based on your income).
(Edited by : Sudarsanan Mani)
