Since the Government of India does not run any social security scheme to take care of its citizens after retirement, NPS was introduced by it under which you can contribute money in order to accumulate funds for your retirement corpus.
The National Pension System (NPS) was introduced for the salaried people in 2004 as an alternative to the Employee Provident Fund (EPF) scheme to move from the defined benefits system to defined contribution for retirement benefits. The scheme was extended to all the persons later on. Of late, the interest of people has grown substantially in NPS.
Since the subject of NPS is very wide in itself and can not be covered in one article, so in order to make readers understand NPS thoroughly, I have decided to write a series of articles covering the entire gamut of various aspects of NPS. Here is the first article on the basics of NPS.
What is NPS
Since the Government of India does not run any social security scheme to take care of its citizens after retirement, NPS was introduced by the government under which you can contribute money in order to accumulate funds for your retirement corpus with low cost. This is specifically useful for self-employed category of persons who do not have a scheme similar to the provident fund scheme available for salaried people in the organised sector.
Who can open an NPS account?
Any individual who is a citizen of India can open the account under NPS. So, an NRI who has retained his Indian passport can also open this account. The rules have been amended on October 2019 to allow Overseas Citizen of India to open the NPS account. Unlike a PPF account where the criteria for opening the PPF account is based on your residential status under the Foreign Exchange Management Act (FEMA) where even a foreign national who has been working in India can open a PPF account here, but he can not open an NPS account here as though residing in India he still continues to be non-Indian Citizen. For opening an NPS account, a person should have completed 18 years of age on the date of opening the account. Initially the upper age limit for entry into the NPS account was set at 60 years, but the same has later on been extended to 65 years in November 2017 in view of the fact that many people continue to work beyond 60 and till 65 even after retirement. A person who has been declared an insolvent and has not been discharged as insolvent cannot join this scheme. A person of unsound mind also cannot open an account under NPS.
For such late joiners, the NPS account will mature with the subscriber reaching the age of 70. However, for those who join before 60 years, the NPS account matures on completing 60 years of age. A subscriber to NPS account has an option to extend this beyond 60 years up to 70 years of age.
Though you are allowed to open a PPF account for your minor child as a guardian, this is not possible in the case of NPS as the it can only be opened by major persons. Moreover, in case of PPF, you can contribute to the PPF account.
Limit on contribution to NPS account
Unlike a PPF account where you cannot deposit more than Rs 1.50 lakh in a single PPF account in a year, no such restriction is applicable in case of an NPS account. So, you are allowed to put in any amount in your NPS account. It may be noted that even if the tax laws have some restrictions on the amount up to which you can claim the tax benefits for contribution made in the NPS account, you can still deposit any amount in your NPS account beyond the limit up to which tax benefits are available.
Where the account can be opened?
The NPS account can either be opened online of offline. The online account can be opened by vising the site of NDSL. You can also do so by visiting the site of Karvy Fintech, among others.
For facilitating opening of an NPS account offline, the government has nominated many entities. Such entities, called Point Of Service (POSO) include various nationalised banks as well as private banks. Additionally, some more entities like the Indian Postal Department, Stock Holding Corporation, UTI Asset Management Company and UTI Technology Services Limited etc. have also been appointed for the purpose of opening an NPS account. I will discuss in detail the process of opening an NPS in the subsequent article. These entities have in turn nominated a few branches as service providers and are called POP-SP.
So, you can see that many entities have been nominated for facilitating of opening the NPS account. Hence you will not find it difficult to identify the POP for opening your account.
Joint holding and nomination
The NPS account can only be opened in a single name. However, the rules allow you to appoint a maximum of three nominees for your NPS account. The nominees can be appointed at the time of opening the NPS account. Since it is a prudent practice to have a nominee for all your investments, you should appoint the nominee for your NPS account as well. The nominee can be a major or a minor, but in case of a minor being appointed as a nominee, you need to furnish details of the guardian with date of birth of the minor. While nominating more than one nominee, you need to specify shares of each nominee in percentage terms. Please ensure that share is not mentioned in fractions and the sum of all the nominees add to 100%.
Can one have both EPF account and NPS account?
Only an employee can join an Employee Provident Fund account initially, though he can continue to retain it even after leaving the employment or after retirement, but the NPS account can be opened by any one, whether salaried or not. So is the case with PPF. In fact, a salaried person can have all these accounts together at the same time.
(The author is a tax and investment expert and can be reached at firstname.lastname@example.org)