In order to make National Pension System (NPS) more customer-friendly, the Pension Fund Regulatory and Development Authority (PFRDA) has created an online platform called eNPS through NPS Trust to open a new account. Even existing subscribers can contribute money through the portal.
At the time of registering, a subscriber will have to fill in his Permanent Account Number (PAN) which will be validated online with the income tax department. The subscriber can then select the bank from the drop down option, which will verify the know-your customer (KYC) requirements. Then one has to fill up personal details and upload photograph and signature. The bank will have access to eNPS module in their existing digital signature certificates-based login, which is used for accessing the central record keeping agency system.
The details submitted by the subscriber will be sent through the CRA system to the selected bank for KYC verification. A subscriber can contribute money through net banking from the account of the selected bank. Once the payment is complete, the CRA will provide the permanent retirement account number (PRAN) which will become operational after the bank verification. The subscriber will have to print the form, paste a photograph, sign and submit the form to the CRA, which is NSDL. The form should be sent to the CRA within 90 days from the date of allotment of PRAN.
A subscriber can make online contribution through net banking, debit or credit card and the amount will be credited in the subscriber’s PRAN account on T + 2 basis (second day after the transaction). The eNPS facility cannot be used for enrollment under Atal Pension Yojana (APY). A subscriber can make initial and subsequent contribution to both Tier I as well as Tier II account from eNPS. However, at present are are only about 11 banks which have access to the eNPS module.
NPS is an ideal investment vehicle for retirement planning. A pure defined contribution pension product, NPS was introduced in 2004 for government employees and in 2009 was extended to all private sector employees. For, non-government employees, up to 50% of the contribution can be invested in equities and the rest between corporate and government debt paper. The biggest benefit for individual tax payers was in 2015 Budget as the government allowed tax benefit on investment of up to R50,000 in a year under Section 80CCD, which is over and above the benefit available on R 1.5 lakh under Section 80C.
However, the government has not made investments in NPS tax free at the time of withdrawal. While the investments and interest accumulations will not be taxed, the money would be taxable at the time of withdrawal. However, products like PPF and EPF are tax-exempt at all the three stages — investment, accumulation and withdrawal.
Partial & final withdrawal
Subscribers of NPS Tier 1 account can now make partial withdrawal of up to 25% of contributions for certain specified circumstances after 10 years of being in the scheme. The partial withdrawal can be done for children’s higher education or marriage, construction or purchase of first house, and treatment of critical illness for self, spouse, children or dependent parents. However, partial withdrawal won’t be allowed for buying a second property. A subscriber can withdraw from NPS only three times during the entire tenure and the gap between each withdrawal has to be at least five years. Partial withdrawal makes NPS attractive as many investors stayed away from it because of liquidity issues.
Subscribers of Tier-II account can withdraw the accumulated wealth, either in full or part, at any time and there will be no limit on such withdrawals till the account has sufficient amount of accumulated pension wealth to take care of the applicable charges.
After retirement, a subscriber can withdraw 60% of the corpus and buy annuity from the rest 40% of the accumulated corpus. If the accumulated pension wealth of the subscriber is less than R2 lakh, he will have the option to withdraw the entire accumulated pension wealth without buying any annuity.
If the subscriber dies before 60, the accumulated pension wealth will be paid to the nominee or the legal heir. There will not be any condition of mandatory purchase of annuity or monthly pension. However, the nominee of the deceased subscriber will have the option to purchase any of the annuities being offered by empanelled life insurers with PFRDA. Once an annuity is purchased, cancellation and re-investment with another annuity service provider or in another annuity scheme will not be allowed unless it is done within the free-look period. The pension regulator has also given the option of a default annuity provider and annuity scheme for the benefit of subscribers exiting from NPS.