Budget 2015 provided for additional exemption of Rs 50,000 for
investing in NPS (National Pension Scheme) Tier 1 account u/s 80CCD(1B). This was to encourage NPS as popular
retirement planning option. And we all know anything related to tax saving
automatically becomes a popular investment avenue. In an earlier post we had highlighted why you should invest in equity
mutual funds than NPS, but still I got people who were interested in
opening NPS account and take advantage of Section 80CCD(1B).
This
post tells you how to open and invest in NPS?
Download Automated One by One Prepare Form 16 Part A&B and Part B for F.Y.2015-16 [This Excel Utility can prepare automatic at a time Form 16 Part A&B and Part B with all new feature of Income Tax Amended by the Finance Budget 2015]
Eligibility for NPS Account:
NPS
account can be opened by anyone with age between 18 to 60 years. Even NRIs are
eligible to open NPS accounts. NRIs can invest through normal banking
channels or out of funds held in their NRE/FCNR/NRO account.
NPS Account Tiers:
NPS
has two tiers.
1. Tier -I account is the primary account and the contribution to this account
is locked till retirement.
2. Tier- II account is optional saving account and deposit and withdrawal to
this account can be done anytime.
Type of NPS Account:
There
are 4 types of account depending on type of subscriber.
1. Government Sector – this account is opened for Government employees by their
respective employers
2. Corporate Sector – this account is opened for Private Sector employees by their
respective employers
3. All Citizen Model – for all citizens who are not covered in above two categories
4. NPS Lite / Swavalamban – this is Government sponsored NPS scheme with some subsidy from
government
How to open NPS Account?
The good news is opening NPS account is
relatively simple. You can download the NPS application form by clicking here.
After filling the form you can submit it to
your nearest Point Of Presence – Service
Provider (POP-SP)
along with yourPAN card, address proof, cancelled cheque and cheque for initial
deposit.
How to fill NPS Account Opening Form?
The
NPS account opening form is 4 page simple form. The first page asks for
Personal Details, Address, contact details and bank details.
Page
2 has nomination details, NPS option, Pension Fund Selection and investment
option selection.
Page
3 is just KYC verification by POP-SP.
Page
4 is the instruction page.
Select your Pension Fund
There
are total of 7 pension fund managers
1.
LIC Pension Fund Limited
2.
SBI Pension Funds Private Limited
3.
UTI Retirement Solutions Limited
4.
ICICI Prudential Pension Funds Management Company Limited
5.
Kotak Mahindra Pension Fund Limited
6.
Reliance Capital Pension Fund Limited
7.
HDFC Pension Management Company Limited
Out
of the above 7 only LIC, SBI and UTI are available for Government employees
while all 7 are available for all other NPS accounts.
Asset Investment Options:
There
are 3 types of assets you can invest into.
1.
Asset Class E– Investment in
predominantly equity market instrument.
2. Asset Class C-Investment in
fixed income instruments other than Government Securities
3.
Asset Class G– Investment in
Government Securities/Bonds
Active
Vs Auto Choice:
You
need to select between active and auto investment choice.
Active Choice – in this case you can select the allocation between the above 3 asset
classes. You can invest maximum of 50% in Asset Class E.
Auto Choice – in case of auto choice the allocation between assets happen based
on the age of the subscriber. Till the age of 35 years the allocation is 50% in
Class E, 30% in Class C and 20% in Class G. every year the asset distribution
is changed such that Class E is reduced by 2%, Class C reduced by 1% and Class
G increased by 3%. At the age of 55, there is only 10% invested in Class E and
C each and rest 80% is in Class G. The above asset distribution is done to keep
the volatility to the minimum as the subscriber reaches withdrawal stage.
Download Automated Form 16 Part B which can prepare Form 16 Part B One by One for Financial Year 2015-16 with all Amended by the Finance Budget 2015-16
How to Open NPS Account Online?
You can also open NPS account online if you
have internet banking enabled for any of the 10 participating banks –Allahabad Bank, Bank of India,
Bank of Maharashtra, Oriental Bank of Commerce, South Indian Bank, State Bank
of Travancore, State Bank of Hyderabad, State Bank of Patiala, Tamilnadu
Mercantile Bank and United Bank of India. .
Just go to eNPS website, fill
up the form and make the initial contribution.
Next take
a printout of the form, paste your photograph (do NOT sign across the
photograph) & affix signature. The form should be sent within 90 days
from the date of allotment of PRAN to CRA at the following address:
Central
Recordkeeping Agency (eNPS)
NSDL e-Governance Infrastructure Limited,
1st Floor, Times Tower,
Kamala Mills Compound, Senapati Bapat Marg,
Lower Parel, Mumbai – 400 013
NSDL e-Governance Infrastructure Limited,
1st Floor, Times Tower,
Kamala Mills Compound, Senapati Bapat Marg,
Lower Parel, Mumbai – 400 013
What after NPS Form Submission?
On
submission of NPS form, a 17 digit Permanent Retirement Account Number (PRAN)
will be allotted to you. Within 2-3 weeks you would get welcome kit containing
a PRAN Card, IPIN/TPIN, Subscriber Master Report, Scheme Information Booklet
along with a Welcome Letter through post.
Subsequent Contributions:
All
the active NPS account holders can do subsequent contributions online. For
every contribution, you need to authenticate PRAN using the OTP sent on the
registered mobile number. Next you can pay using your debit card or internet
banking.
Investment Limit in NPS:
The
initial contribution has to be made at the time of submitting the form at the
POP-SP. The initial contribution should be minimum Rs 500 for Tier-I account
and Rs 1,000 for Tier-II account.
Thereafter
you should contribute at least once every year in both Tier-I and Tier-II
(if opened) account. The minimum contribution should be rs 500 for Tier-I
account and Rs 250 for Tier-II account.
Overall
the minimum contribution should be Rs 6,000 for Tier-I account and there is no
maximum investment limit. The minimum balance for Tier-II account should be at
least Rs 2,000 at the end of each financial year.
There
is no limit to the number of times you can make deposit.
Penalty for not making minimum Contribution:
If
the subscriber fails to make the above minimum contribution, a default penalty
of Rs. 100 per year of default is levied and the account would become dormant.
In order to reactivate the account, the subscriber would have to submit form
Form UOS-S10 pay the minimum contributions (Rs 500), along with penalty
(Rs 100), due for the period of dormancy. The dormant account will be
closed if the account value falls to zero.
Charges for NPS:
NPS
charges can be classified into 4 headers:
1.
Point of presence (PoP) charges
2.
Central record-keeping agency (CRA) charges
3.
Pension fund management charges and
4.
Custodian charges
NPS Tax Benefits:
NPS
Tier -I account has tax benefit under 3 sections:
1. Section 80CCD(1) – Employee
contribution up to 10% of basic salary and dearness allowance (DA) up to 1.5
lakh is eligible for tax deduction. [This contribution is part of
Sec 80C 1.5 Lakh investment limit]. Self employed can also claim
this tax benefit. However the limit is 10% of their annual income up to maximum
of Rs 1.5 Lakhs.
2. Section 80CCD(1B) – Additional
exemption up to Rs 50,000 in NPS is eligible for income tax deduction. This was
introduced in Budget 2015.
3. Section 80CCD(2) – Employer’s
contribution up to 10% of basic plus DA is eligible for deduction under this
section above the Rs 1.5 lakh limit in Sec 80CCD(1). This is also
beneficial for employer as it can claim tax benefit for its contribution by
showing it as business expense in the profit and loss account. Self employed cannot claim this tax benefit.
