Complete Guide on NPS (National Pension System) in Hindi | Retirement Planning | Tax Saving Benefit

National Pension System or NPS is slowly gaining popularity among people as an essential retirement planning tool. In addition to wealth accumulation, the tax benefits of NPS are an attraction to many Indians. In this video we shall explain many aspects of the National Pension Scheme including what is NPS and how does NPS work. We'll also talk about how and where your money gets invested, how you can withdraw this amount and the amazing tax benefits you get when you invest in this.

There are many excellent resources on NPS on ETMONEY. Here are some you should use:
1. Our NPS calculator at https://www.etmoney.com/tools-and-calculators/nps-calculator
2. Invest in NPS and save taxes at https://www.etmoney.com/nps
3. We have 9 articles on different aspects of National Pension Scheme at https://www.etmoney.com/blog/category/nps/

Topics covered in this video:
00:00 Introduction
01:10 What is NPS?
02:22 Where does your NPS contribution get invested?
03:13 How does money get allocated in NPS?
05:30 When and How to withdraw money from NPS?
06:52 Tax benefits of NPS

👉 What is NPS?

The NPS or National Pension System is a voluntary retirement scheme through which you can create a retirement corpus or your old-age pension. It’s managed by PFRDA (Pension Fund Regulatory and Development Authority) and available to all Indian citizens (resident or non-resident) between 18 and 65 years old. One can join the NPS as late as when they are 60 years old and continue to contribute until they are 70 years old.

There are two different accounts to consider under the NPS – Tier I and Tier II. The NPS Tier I account is the retirement account and comes with a host of tax benefits, but you cannot withdraw your contributions till you reach the age of 60. The NPS Tier II account has no restrictions, and you can take out money anytime you want.

👉 How your contributions get invested?

As an NPS subscriber, you are required to make an initial minimum contribution of Rs 500 under the Tier I account and Rs 1,000 for Tier II at the time of registration. Subsequent contributions, as well as frequency, could vary, but one needs to make an annual minimum Rs 1,000 contribution annually under Tier I and Rs 250 under Tier II.

Investments in NPS are market-linked, which deploy funds under three different funds that are governed by the asset classes in which your contributions can be invested. The broad asset classes are Equity (E), Corporate bond (C), Government securities (G), and Alternative Investment Funds (A), which have further choices within (See: Available asset classes).

To provide choice, the NPS funds are regulated by the PFRDA, and 7 pension fund companies are managing the schemes. These entities actively manage the four different types of asset classes permitted by the regulator as per the investment guidelines provided.

Within the available asset classes, NPS subscribers can opt for active or auto choice for asset allocation. In the active choice, the subscriber decides how much money gets invested in each asset class. While in automatic choice, asset allocation gets determined based on the subscriber’s age.

Pension fund management companies
1. SBI Pension Funds Private Limited
2. UTI Retirement Solutions Limited
3. LIC Pension Fund Limited
4. Kotak Mahindra Pension Fund Limited
5. HDFC Pension Management Company Limited
6. ICICI Prudential Pension Funds Management Limited
7. Birla Sun Life Pension Fund Manager

👉 Tax Benefits of NPS

Individual taxpayers can claim deduction on contributions under Tier I NPS up to Rs 1.5 lakh in a financial year under Section 80C. Further, NPS subscribers can claim an additional deduction for investment up to Rs 50,000 in Tier I account in a financial year under Section 80CCD (1B) over and above the Rs 1.5 lakh deduction under Section 80C. However, contributions to Tier II do not provide any tax benefits.

👉 NPS Withdrawal on Maturity

When you reach the maturity age, which is 60 years, you can withdraw the entire corpus from Tier I, of which only 60% is exempt from tax as with the remaining 40%, one has to purchase an annuity mandatorily.

👉 Cost of NPS (expenses charged for NPS)

On the cost front, NPS operational charges are governed by the NPS trust, and currently, there is an initial subscriber registration charge of Rs 200. Then, you have the account opening cost of Rs 40 with annual account maintenance cost in the range of Rs 60 – Rs 95, and each transaction costs about Rs 3.75. The Pension Fund Manager (PFM) charges 0.01% on the assets managed, and the custodian is charging 0.0032% as an asset servicing charge. The POP has charges too on every transaction, but collectively these are globally amongst the lowest on any financial product.

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