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CHAPTER 1
INTODUCTION

The National Pension Scheme, sometimes referred to as the National Pension Scheme, is
available to workers in the public, private, and unorganized sectors. In order to participate in
the NPS system, users must contribute at least Rs. 6,000, which can be paid in full at once or a
minimum of Rs. 500 every month.
The National Pension Scheme (NPS), a voluntary defined contribution retirement savings
program, encourages participants to consistently save throughout their working lives in order to
help them make the best decisions for their future. NPS wants to help people form the habit of
saving for retirement. It is an attempt to find a long-term solution to the problem of providing
enough retirement income for every Indian.
Individual contributions are combined through the National Pension Scheme (NPS) to create
a pension fund, which is then invested in diversified portfolios of equities, corporate debt
obligations, government bonds, and bills by PFRDA-regulated professional fund managers in
compliance with authorized investment criteria. These payments accumulate over time and
increase in size based on the return on investments.
Participants may use the pension wealth accumulated under the plan to purchase a life annuity
from the PFRDA life insurance business during their NPS retirement, in addition to receiving a
lump sum payout from the accumulated retirement wealth.

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BENEFITS OF NPS

The following are the benefits of the National Pension Scheme.

Returns/Interest

A percentage of the contribution paid for NPS plan is invested in stocks as they offer higher
returns than other traditional tax saving investment options like PPF. This retirement plan.

which offers an interest rate of 9% to 12%, is very suitable for people who want to save

money for the long term and have a secure lifestyle after retirement.

NPS Tax Benefit

This is another benefit offered to NPS members. Section 80C of the Income Tax Act exempts
payments made to NPS scheme from Rs. Rs.1.5lakhs. Additionally, employer and employee
contributions to the National Pensionscheme are eligible for tax deduction

investments in the National Pension Scheme are essential to a pension plan and must be

made up to the age or ow. However, partial withdrawals arethree years ofaccount creation

Users have the option to withdraw up to 25% of their entire investment. Only specific
situations—such as financing a child's education, purchasing a home, or developing an

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emergency medical condition—permit an early withdrawal. A subscriber's maximum

withdrawal limit is three times within a five-day period. These guidelines are exclusive to Tier
I account: This is not relevant.

Under the NPS plan, a retiree cannot take their account amount out once they retire. A
minimum of forty percent of the total money donated for this program must to go toward
purchasing a standard annuity from an insurance company that is PFRDA-registered. Sixty
percent of the total amount raised is tax free.

Rules for Allocating Equity

Investments are maintained in a different system under the NPS plan. In line with stock
allocation

Up to 50% of an investor's funds may be allocated to equities. Active option and automated
option are the two possible investment alternatives. as opposed to automatically choosing
investments according to an investor's age and risk tolerance. Investors that use active selection
have the option to select funds and distribute their assets based on appropriateness and risk
tolerance.

Risk Assessment

Investments are maintained in a different system under the NPS plan. Guidelines for stock
allocation allow investors to allocate up to 50% of their total funds to equities. There are two
potential investment options: automatic and active. Active options give investors the freedom
to select their targets and diversify their assets in accordance with risk tolerance and suitability,
in contrast to auto options, which make investments based on the risk profile and age of the
investor.

It is Voluntary

The NPS system allows subscribers to make contributions at any time throughout a fiscal year
and to alter the amount they wish to invest each year.

Offers Flexibility

The National Pension System encourages independence since it allows individuals to select
their own retirement fund and investing options while simultaneously watching their money
grow. It's easy.

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Members of the National Pension Scheme have the option to choose their own investment
funds and pension plans, allowing them to save more money overall. It's easy.

The Pension Fund Regulatory and Development Authority of India (PFRDA) oversees the
management of the NPS plan. Through continuous assessment and open investment guidelines,
NPS provides subscribers with transparency and reliability.

Returns for the National Pension Plan

Since investments are made in market-linked securities, national pension systems do not have a
fixed rate of interest; rather, returns are determined by how well the funds have performed on
the market.A number of pension funds may be used to invest the NPS program contribution in
four distinct asset classes: stocks, corporate bonds, government bonds, and alternative assets.
The performance of the stock and bond markets affects the returns that these pension schemes
produce.

2023's Top NPS Returns

Unquestionably, the National Pension Scheme is among the most popular annuity options in
the country. In addition to giving investors a tax-free benefit, the NPS plan gives them an
advantage over other fixed income plans. under Sections 80C and 80CCD of the Income Tax
Code. There is a lock-up period that lasts until retirement, although there are circumstances that
allow withdrawals before that time. Another benefit for investors is that their assets are
distributed in compliance with National Pension Scheme guidelines. Investors have the option
of investing in funds manually or automatically.

National Pension Scheme Tax Benefits

A maximum of Rs. 1.5 lakhs is offered under the National Pension Scheme under Section 80c
of the Income Tax Act. Additionally, donations made via the NPS programme by employers
and employees are tax deductible.

Under section 80, 80CCD(1), it is a component of self-contribution. This clause allows for a
tax deduction of up to 10% of the pay. This cap is 20% of self-employed taxpayers' gross

income.

The employer's NPS programme contribution is governed under section 80CCD (2). Taxpayers
who are self-employed are not entitled to this benefit. The lesser of the following figures is the
maximum amount available for a tax credit: a. The employer's actual NPS contribution. B.

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Basic + 10% Pride Bonus C. Gross revenue.

Any extra personal payments jo the National Pension Scheme (NPS) (up to Rs 50,000) may be

written off as a tax advantage under section 80CCD(1B).

FEATURES OF NPS

* The National Pension Scheme is a government-sponsored pension plan. Here are some
details about it as well as some of its key components:

* The National Pension Plan offers returns that are significantly higher than those of
conventional tax-saving investment vehicles like PPF. * Pension plans offer returns of 9% to
12% annually, and investors have the opportunity to swap fund managers if they are not
pleased with the fund's performance. * Shares are invested in as part of the national pension
system. The Income Tax Act's Section 80C permits the exclusion of NPS and has a maximum
value of Rs.

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* Tier-I account subscribers must commit to an annual contribution of Rs. 6,000 as well as a
one-time donation of Rs. 500. Users are required to pay Rs. For the Tier-II account, pay a flat
sum of Rs. 250 as well as an annual commitment of Rs. 2,000.

* After retirement, the full package cannot be withdrawn from the National Pension System.
Merely 60% of the funds in an NPS account may be withdrawn upon retirement; the remaining
40% must be invested in a pension plan in order to generate a consistent income. Anybody can
create an offline or online NPS account. • Over the course of five years, a person may
withdraw money up to three times in total, depending on the amount of service.

41ELIGIBILITY CRITERIA FOR NATIONAL PENSION SCHEME

The National Persion Scheme (NPS), a retirement program, is managed by the Pension Fund
Regulatory and Development Authority of India (PFRDA). In 2004, the program was rolled
out as a voluntary initiative with the goal of giving social security to every Indian citizen. This
program is open to all Indian citizens, including those who do not reside in India, between the
ages of 18 and 65. In this post, we will go more into the National Pension Scheme's eligibility
conditions.

Age restrictions

Applicants for the National Pension Scheme must be between the ages of 18 and 65. The
program's minimum and maximum exit ages are 60 and 70, respectively. If the participant
keeps making contributions to the plan even after reaching 70 years old, the account can stay
open until that time.

Account type

There are two types of accounts available under the National Pension Scheme Tier-I and Tier-
II.

The qualifications for qualifying differ for the two accounts. You must first register a Tier-I
account, which is the primary account, in order to join NPS. A Tier-II Account is a voluntary
account that participants can open at any moment. To create a Tier-Il account, a subscriber
must already have an active Tier-I account.

Citizenship The National Pension Scheme is open to all Indian citizens, including those living
abroad.

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NRIs can use either their Indian or foreign passport to open an NPS account.

NRIs are not permitted to use their foreign exchange accounts to make program contributions.

Professional status

Everyone is eligible to join the National Pension Scheme irrespective of employment status

Participants in this program may also include Federal and State Government employees, as
well as employees of Public Sector Enterprises (PSUs). Self-employed people, professionals in
the private sector, such as physicians, attorneys, and certified public accountants, are eligible to
apply for the program.

Total contribution

The National Pension Scheme is a voluntary program and participants can make any
contribution they choose for free. However, the minimum annual amounts and amounts per
contribution shall

be Rs. 1000 and Rs. 500 respectively. Maximum contribution amount is not limited, just Rs.

Donations only up to 2 lakh per annum is eligible for tax benefits.

KYC compliance

Subscribers to the National Pension Scheme must comply with KYC regulations. Know Your
Customer, or KYC, is the process of confirming the subscriber's address and identity.
Subscribers must provide their PAN card, Aadhaar card, and proof of address in order to
become KYC compliant.

Nomination

Nomination is mandatory while opening an NPS account. The subscriber needs to nominate a
person who will receive the accumulated pension wealth in case of the subscriber's death. The
nominee can be changed at any time by submitting a nomination form to the designated POP
(Point of Presence).

No pension from any government agency

The National Pension Scheme is open to all citizens of India, including those who are already
receiving a pension from any government agency. However, if a subscriber is already receiving

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a pension from any government agency, the pension amount will be deducted from the pension
amount payable under the National Pension Scheme

Withdrawal

Withdrawal from the National Pension Scheme is allowed only after the subscriber reaches the
age of 60 years. However, partial withdrawals are allowed under certain circumstances such as
education, marriage, or medical treatment of the subscriber or any dependent family member.

HOW TO ENROLL IN NATIONAL PENSION SCHEME

The National Pension Scheme (NPS) is a retirement savings program launched by the
Government of India to provide financial stability to its people in their later years. Introduced
in 2004, the scheme is administered by the Pension Fund Regulatory and Development
Authority (PFRDA). AlI Indian citizens including Non-Resident Indians (NRIs) and Foreign
Citizens of India (OCIs) are welcome to participate.

The process of joining NPS is very simple. In this post, we will learn how to register for the
National Pension Scheme and provide a comprehensive overview of the application process.

Eligibility Criteria for National Pension Scheme

65]

Before enrolling in the NPS, it is important to understand the eligibility criteria for the scheme.

The following are the eligibility criteria for NPS:

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Age: Any citizen of India between the age of 18 and 65 years can enroll in the NPS.

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KYC Compliance: The subscriber must comply with the Know Your Customer (KYC) norms.

This requires submission of necessary documents such as PAN card, Aadhaar card, and address
proof.

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Bank Account: The subscriber must have an active bank account in any of the banks registered
with the Central Recordkeeping Agency (CRA) under NPS.

How to Enroll in National Pension Scheme

To enroll in the NPS, the subscriber needs to follow the below-mentioned steps:

Step 1: Choose a suitable NPS account

The first step in enrolling in the PS is to choose the type of NPS account you want to open.

There are two types of NPS accounts:

a) Tier-I Account: This is a mandatory account that is designed to help subscribers build a
retirement corpus. Withdrawals from this account are restricted, and the subscriber cannot
Withdraw the entire corpus until they reach the age of 60 years.
b) Tier-Il Account: This is an optional account that allows subscribers to withdraw money
at any time without any restrictions. This account can be opened only if the subscriber has
an active Tier-
Account
(42)
Step 2: Choose a Pension Fund Manager
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The next step is to choose a Pension Fund Manager (PFM) from the list of PFMs registered
with
PFRDA. The subscriber can choose any one of the seven PFMs based on their investment
goals and risk appetite.
The seven Pension Fund Managers under NPS are:
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SBI Pension Funds Pvt. Ltd.
UTI Retirement Solutions Ltd.
LIC Pension Fund Ltd.
HDFC Pension Management Co. Ltd.
Birla Sun Life Pension Management Ltd.
ICICI Prudential Pension Funds Management Co. Ltd.
Kodak Mahindra Pension Fund Ltd.
Step 3: Fill up the Application Form

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The next step is to fill up the NPS application form, which can be downloaded from the
PFRDA or CRA websites. The subscriber needs to fill up the form with accurate personal
and bank details.
The application form also requires the subscriber to choose their investment option and
Pension
Fund Manager.
Step 4: Submit the Application Form
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After filling up the form, the subscriber needs to submit it to any of the Point of Presence
(PoP) service providers registered with the PFRDA. These PoPs can be banks, financial
institutions, or other entities registered under the PFRDA. The subscriber also needs to
provide the KYC documents for verification.
Step 5: Contribution to the NPS account
After the application form is verified and accepted by the PoP, the subscriber needs to
make the
initial contribution to their NPS account. The minimum contribution for Tier-I account is
Rs. 500, and for Tier-II account is Rs. 1,000.
TAX BENEFITS OF NATIONAL PENSION SCHEME
The National Pension Scheme (NPS) is a government-sponsored retirement savings scheme
that
otters several tax benefits to its members. IPs is now one of the most preferred retirement
savings plans in India due to these tax benefits. We will take a deeper look at the tax
benefits of NPS in this post.
Tax Deduction under Section 80C
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One major tax advantage of NPS is that it provides Section 80C tax deduction of Rs. 1.5
lakhs
All NPS subscribers are eligible for this deduction, irrespective of whether they are
employed or self-employed. This tax exemption is available for subscriber contribution to
NPS account.
It is important to remember that only a portion of the contribution paid to the NPS account
is eligible for deduction. A participant's contribution amount or 10% of their salary,
whichever is less, is eligible for exemption. 20% of gross annual income of self-employed
persons is eligible for exemption..
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Tax Deduction under Section 80CCD(1B)

NPS subscribers Rs. Also eligible for additional tax exemption up to 50,000 tax deduction
under section 80CCD (1B), plus section 80C. This exemption is in addition to the
exemption allowed under section 80c.
Only contribution made by subscriber to Tier-I account for NPS qualifies for exemption
under section 80CCD(1B). All NPS subscribers, whether employed or self-employed, are
eligible for the exemption.
Tax-Free Withdrawals
The fact that NPS allows for tax-free retirement withdrawals is another significant tax
benefit. Due to their NPS account, individuals are eligible to receive a full distribution of
up to 60% of the pool at retirement. This lump amount withdrawal is tax-free.
The remaining forty percent of the group must be used to acquire annuities from life
insurance companies. The annual income of the participant is subject to taxation at their
personal income tax rate.
Wealth tax exemption
A wealth tax is a charge based on a person's net worth. A person's net worth is calculated
by deducting any liabilities from the total amount of their assets. There is no wealth tax
applied to NPS. This indicates that the accumulated pool in the NPS account is not
included in the participant's net worth.
Every time securities, such as stocks, mutual funds, etc., are purchased or sold, a tax known
as the Securities Transaction Tax (STT) is imposed. NPS is not covered by STT. This
suggests that the subscriber's NPS account investment is free from STT.

COMPARISON OF NATIONAL PENSION SCHEME WITH OTHER

RETIREMENT SCHEMES

FLEXIBILITY
One of its main advantages is the flexibility of the National Pension Scheme. Subscribers
have the option to choose their own fund managers and investment alternatives, as well as
switch between them. As a result, members can vary their investment portfolios according
to their risk tolerance and financial goals.

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TAX BENEFITS
Tax advantages are available for contributions made to all qualified retirement plans. The
National Pension System, however, provides excellent tax advantages. Contributions made
to NPS up to Rs. 80C are eligible for a rebate under Section 80C of the Income Tax Act, up
to Rs. 1.5 lakhs. In addition, the Income Tax Act's Section 80CCD (1B) offers Rs. permits
a further exemption of up to $50,000.
For tax planning purposes, NPS is a particularly appealing retirement choice as a result.
Contributions to the People's Monetary Fund and the European Monetary Fund are likewise
tax benefited. Contributions made to the EPF up to Rs. 1.5 lakhs are eligible under Section
80C of the Income Tax Act. EPF interest income is not subject to taxes. Payments paid to
PPF up to Rs. 1.5 lakhs are tax deductible under Section 80C of the Income Tax Act, just as
interest received in the PPF group is.
Under Section 80CCD(1) of the Income Tax Code, contributions made to the plan under
APY are also eligible for tax credits.

Yield
The National Retirement System has the potential to produce larger returns when compared
to other retirement schemes. With the flexibility to select their investment options and fund
managers, subscribers can invest in a diverse portfolio of stocks, bonds, and other assets.
NPS returns are influenced by the available investment options and the fund manager's
track record.
On the other hand, EPF and PPF offer fixed interest rates set by the Government of India.
Generally, the interest rates on these programs are lower than the National Pension Scheme
returns.
Defined pension plan and amount of contributions affect APY returns. Generally, APY
returns are lower than the National Retirement System.
Optional withdrawal
Compared to other retirement plans, the National Retirement System offers more flexible
withdrawal alternatives. After retirement, subscribers can take up to 60% of the group; The
remaining 40% is used to purchase an annuity. A subscriber can delay purchasing an
annuity for up to three years after retirement.
After the five-year holding period is over, email mailbox subscribers can withdraw their
funds.

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Prior to the expiration of the insurance period, subscribers may also withdraw a portion of
their savings in an emergency.
Like PPF, users are able to take their money out after a 15-year holding term.
After retiring, participants can take their money out under APY. But group withdrawals
made using the APY are subject to taxes.

FREQUENTLY ASKED QUESTIONS ABOUT NATIONAL PENSION

SCHEME.

The National Pension Scheme (NPS) is what, exactly?

* The Indian government introduced the National Pension Scheme in 2004 as a voluntary
retirement programm. It is a defined contribution pension plan that is market-linked.

•Who qualifies for membership in the National Pension Scheme?

The National Pension Scheme is open to all Indian nationals between the ages of 18 and 65

57 How can I sign up for the National Pension System?

You may visit the National Pension Scheme's official website to sign up, or you can go to a
Point of Presence (PoP) or an authorised NPS intermediary.

* What sorts of accounts are available under the National Pension Scheme?
The National Pension Scheme offers two different kinds of accounts: Tier 1 accounts and
Tier 2 accounts. While the Tier 2 account is optional and has no lock-in duration, the Tier 1
account is required and has a lock-in period of 15 years.

How much of a contribution is necessary to start an account with the National Pension
Scheme?
For Tier 1 and Tier 2 accounts, respectively, a deposit of Rs. 500 and Rs. 1,000 is needed
to start an NPS account.

What is the highest amount that may be deposited into a National Pension Scheme account?
The amount that may be contributed to a National Pension Scheme account has no upper

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limit. Tax advantages, however, are only accessible on donations up to Rs. 2 lakh every
fiscal year.

What kind of investments are offered under the National Pension Scheme? Participants in
the National Pension Scheme have access to a variety of investment alternatives, including
stocks, corporate bonds, and government securities.

Can I switch my National Pension Scheme fund manager or investment option?

* Under the National Pension Scheme, you may alter your investment selection or fund
manager. Twice a year, subscribers have the option of changing investment selections or
fund managers.

What tax advantages are offered by the National Pension Scheme?

Section 80C of the Income Tax Act allows for a deduction of up to Rs. 1.5 lakh for
contributions paid to the National Pension Scheme. According to Section 80CCD(1B) of
the Income Tax Act, a further deduction of up to Rs. 50,000 is permitted

Can I withdraw my money prior to the end of the lock-in period? * Partial withdrawals
from the National Pension Plan are allowed three years after account opening. However, a
complete withdrawal is the only option available when the lock-in period has elapsed.

How is the pension amount under the National Pension Scheme calculated? * The
contributions paid, the returns received on those contributions, and the annuity rates in
force at the time of retirement

All go into determining the pension amount under the National Pension Scheme.
Can I open multiple National Pension System accounts? * No, a person is only allowed to
have one account under the National Pension Scheme

In the event of the subscriber's demise, what happens to their National Pension Scheme
account?
If a subscriber passes away, their nominee or legal successor may be eligible to receive the
National Pension Scheme's accumulated corpus.

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Here are two types of accounts that NPS offers:

1. Tier-I Account
This is a basic pension account with withdrawal limits
Only 25% of contributions may be withdrawn before to the age of 60; the remaining 75%
must be utilised to buy an annuity from a life insurance provider. An annuity is a series of
payments delivered at regular intervals. Plans with annuities require the insurance provider
to provide the insured periodical payments until their death or the plan's maturity.

After reaching retirement age (60 years), around 60% may be withdrawn; the remaining
40%
Must be used to purchase an annuity from a licenced life insurance.

2. Tier-II Account
It is a voluntary savings option from which one may take out an unlimited amount of cash.
National Pension Scheme Fund Managers
The person or organisation that makes choices about any investment portfolio (often a
mutual fund, pension fund, or insurance fund), in accordance with the fund's declared
objectives. When starting the account, a fund manager must be selected.

Seven fund managers chosen by the PFRDA are in charge of the money. The National
Pension Scheme's registered pension funds are listed below.
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Pension Funds for Government Sectors
* LIC Pension Fund Limited.
* SBI Pension Fund Pvt. Ltd.
* UTI Retirement Solutions Ltd
.
Ension funds other than public sector
* ICICI Prudential Management Pension Fund Limited.
* HDFC Pensions Management Company Limited
* Kotak Mahindra Pension Fund Limited.
* Aditya Birla Sunlife Pension Management Limited.
* Tata Pension Management Limited.
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* Max Life Pension Fund Management Limited.

* Axis Pension Fund Management Limited.
Features of NPS Tier-1 and NPS Tier-2 account.
National Pension Scheme Tier I
National Pension Scheme Tier II
Seven fund managers that the PFRDA chose are in charge of the money. These are the
Registered pension funds under the National

Pension Scheme.
However, the investor pays Rs. 6000 for the non-government fund, with the option of
paying at least Rs. 500 per installment.
Corporate and government bonds make up the majority of the default investment in a
Government fund

Stocks, corporate bonds, government funds,

FDs, liquid funds, etc. are the default investments in non-government funds.
The initial donation is Rs. 1,000, but a minimum monthly commitment of Rs. 250 may also
be selected. Additionally, a minimum balance of Rs.2,000 must be kept at the end of the
fiscal year.

Equity, corporate bonds, goverment funds, money market accounts, liquid funds, etc. are all
included in the investment.
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