As you prepare to file your first Income Tax Return (ITR), it’s the perfect time to consider your long-term financial future. One of the most effective ways to secure your retirement while enjoying significant tax benefits is by opening a National Pension System (NPS) account. This article will explore why NPS is crucial for young professionals and guide you through the process of opening an account.

If you’re filing your first ITR, you’re likely in your mid-twenties – an ideal time to start investing and harness the power of compounding. By investing just Rs 4,000 per month in an NPS account, you could potentially accumulate a substantial fund value over time. For instance, with a 10% annual return over 30 years, your investment could grow to an impressive Rs 91,17,302, providing a monthly pension of Rs 60,782 (assuming an 8% annuity rate).

NPS offers unique tax advantages that make it an attractive option for young professionals:

1. Under Section 80CCD (1A), you can claim deductions up to ₹1,50,000 for employee contributions, which includes investments in EPF, PPF, and insurance.

2. Section 80CCD (1B) provides an exclusive benefit for NPS, allowing an additional deduction of up to Rs 50,000 for voluntary contributions.

3. Section 80CCD (2) offers deductions for employer contributions up to 10% of your basic pay, applicable even under the New Tax Regime.

Moreover, NPS follows the EEE (Exempt-Exempt-Exempt) model, meaning your investments, accumulations, and redemptions are all tax-exempt.

Also Read: Discard ITR: Made a mistake in your ITR? Can you discard it and file a fresh tax return?

Corporate NPS: Maximizing Employer Contributions

To take full advantage of the 80CCD (2) benefits, consider registering for Corporate NPS. This process is similar to EPF deductions and requires minimal effort from your company’s HR department. Additionally, NPS accounts are portable, allowing you to transfer your Permanent Retirement Account Number (PRAN) to a new organization when changing jobs, free of cost and entirely online.

Other Benefits of NPS:

1. Low cost: NPS has a management cost of only about 1% of your investment per annum.

2. Flexibility: Choose from various investment options, including equity, corporate bonds, government securities, and alternative asset classes.

3. Professional management: Your funds are handled by experienced fund managers, potentially leading to better investment outcomes.

4. Portability: Continue contributing to your NPS account even when changing jobs.

5. Choice of pension annuity options: Use part of your corpus to purchase an annuity for regular retirement income, often at higher rates for NPS subscribers.

6. Regulation: NPS is overseen by the Pension Fund Regulatory and Development Authority (PFRDA), ensuring transparency and safety.

How to Open an NPS Account:

Opening an NPS account is now a fully paperless and online process. Here’s a step-by-step guide:

1. Visit the official website of any Registrar Transfer Agent company and go to NPS registration.

2. Click on “New Registration” to begin the process.

3. Enter your personal details, including name, date of birth, and contact information.

4. Provide your PAN card details and Aadhaar number for verification.

5. Choose your preferred pension fund manager and investment option.

6. Set up your contribution amount and frequency.

7. Complete the KYC process by uploading the necessary documents.

8. Review all the information and submit your application.

9. Make your first contribution to activate your account.

Remember, all NPS-related processes can be conducted online without visiting any branch office.

As you embark on your financial journey with your first ITR filing, opening an NPS account is a smart move for long-term tax benefits and retirement planning. With its unique tax advantages, flexibility, and potential for significant returns, NPS offers a solid foundation for your financial future. Take the first step towards a secure retirement today by registering for an NPS account online.

(By Rajesh Khandagale, Senior Vice President – NPS at KFin Technologies Ltd)

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