Summary Sheet

–
National Pension System

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 1 Introduction to NPS
National Pension System (NPS) is a pension cum investment scheme launched by
Government of India to provide old age security to Citizens of India. It brings an attractive
long-term saving avenue to effectively plan your retirement through safe and regulated
market-based return. The Scheme is regulated by Pension Fund Regulatory and
Development Authority (PFRDA). National Pension System Trust (NPST) established by
PFRDA is the registered owner of all assets under NPS.

1.1 How NPS Works?

Individuals contribute money to NPS, which is then invested by pension funds managed by
PFRDA-regulated professional fund managers as per the approved investment guidelines.
These funds are invested in a diversified portfolio comprising mainly of:
• Government Bonds
• T- Bills
• Corporate Debentures
• Shares
• Others
Please note that the returns on these investments are market-linked and not fixed, varying
based on the performance of the investments.

1.2 How are returns calculated?

Pension fund managers allocate money according to the individual's chosen asset
allocation. Units are allocated based on Net Asset Values (NAV is price of one unit of fund),
which represent the price of one unit of the fund. For example, if an individual invests
₹10,000 and the NAV is ₹100, they will be allocated 100 units. As the NAV fluctuates with
market performance, the value of the investment changes accordingly. Please note that the
NAV is declared each day.
Some key points:
• A person cannot open Multiple NPS accounts.
• A person cannot open an NPS account jointly with his spouse, child, relatives, etc.
• Therefore, we can say that NPS account can be opened only in individual capacity.

1.3 Ombudsman under NPS

Ombudsman is a person appointed by Pension Fund Regulatory and Development Authority
(PFRDA). PFRDA may appoint one or more Ombudsmen for different territorial jurisdiction.
Role of Ombudsman:

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 The typical duties of an ombudsman are to investigate complaints and attempt to resolve
them, usually through recommendations or mediation.
Ombudsmen sometimes also aim to identify systemic issues leading to poor service or
breaches of people's rights.

2 NPS Architecture
NPS can be broadly classified into two categories:

2.1 For Private Sector

PFRDA has put in place unbundled architecture managed through a set of intermediaries
who have experience in their own areas of operation.
This unique structure safeguards the subscriber’s interest as the role of particular
intermediary is limited to the functions assigned to it and no single intermediary/entity has
complete over NPS.

Now, let us discuss all the above-mentioned entities one by one:

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 2.1.1 POP and POP-SPs:
Points of Presence (PoP) - Appointed by PFRDA, they include mainly commercial banks who
act as the first points of interaction of the NPS subscriber under the NPS architecture. For
example, HDFC Bank, Bank of Baroda, etc.
POP-SPs -> The authorized branches of a POP, called Point of Presence Service Providers
(POP-SPs), act as collection points and extend a range of customer services to NPS
subscribers. For example, branches of HDFC Bank, Bank of Baroda.
Activities done by POP-SPs are as follows:
• Collecting Subscriber Contribution: Gathering funds from NPS participants for their
pension accounts.
• Change in Subscriber Details: Updating and maintaining accurate personal information
of NPS participants.
• Grievance Handling: Addressing and resolving any complaints or concerns raised by
NPS subscribers.
POP-SPs upload subscriber contribution details online into the CRA (Central Recordkeeping
Agency) system on a T+1 basis for the corresponding PRAN of the subscriber. They also
remit clear funds, after deducting their charges and applicable taxes, to the Trustee Bank
on a T+1 basis for the corresponding PRAN of the subscriber.
POPs Registered Under NPS: There are various POPs registered under NPS like, State Bank
of India, Axis Bank, IDBI Bank, HDFC Bank and several others. Please note that you do not
need to remember their names.

2.1.2 Central Recordkeeping Agency

The NPS system relies on a central hub for subscriber data management – the Central
Recordkeeping Agency (CRA). Appointed by PFRDA and entrusted with the record keeping
of the data of individual subscribers; also acts as an interface between the different
intermediaries in the NPS system. If you will see the flow chart, you can see that CRA is
connected with every entity.
It is governed by PFRDA (Central Record Keeping Agency) Regulations, 2018.
Now, let us discuss the functions of CRA.
Functions of CRA:
The CRA plays a critical role in managing NPS account by:

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 1. Registration of Subscribers and issuance of Permanent Retirement Account Number
(PRAN): The CRA is responsible for registering new subscribers and issuing them a
Permanent Retirement Account Number (PRAN), a unique 12-digit code essential for
managing their NPS accounts.

2. Digitization and maintenance of Subscriber record/preferences: CRA digitizes and

maintains comprehensive records of subscribers, ensuring accuracy and security of
their personal data and preferences.
3. Updating Subscriber record/preferences based on requests made for
change/revision: Any changes or revisions requested by subscribers regarding their
personal information or preferences are processed and updated by the CRA.
4. Providing operational interface to other intermediaries under NPS Architecture: CRA
serves as a central operational interface for other intermediaries within the NPS
ecosystem, facilitating seamless communication and coordination.
5. Generation and dispatch of Statement of Transactions to Subscribers and Providing
subscribers with online/electronic access to their PRAN account: The CRA generates
and dispatches Statements of Transactions to subscribers, providing them with a
comprehensive overview of their NPS activities. Subscribers also have online access to
their PRAN accounts for real-time monitoring.
6. Receiving, acknowledging and redressal of Subscriber grievances through Central
Grievance Management System portal: CRA receives, acknowledges, and resolves
subscriber grievances through its Central Grievance Management System portal,
ensuring prompt and efficient resolution of issues.
7. Processing of Exit/Withdrawal request of Subscribers: Any requests for exit or
withdrawal from the NPS made by subscribers are processed and managed by the CRA
in compliance with regulatory requirements.

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 CRA Registered under NPS
There are three Central Record Keeping Agencies that are registered under NPS:
• CAMS – Computer Age Management Services Limited.
• Protean eGov Technologies limited (formerly NSDL e-Governance Infrastructure
Limited).
• KFin Technologies Private Limited (Formerly Karvy).
Please note that the Interoperability functionality allows the existing subscribers of NPS to
shift from one CRA to the other. So, if you are not satisfied with KFin Technologies you can
easily shift to other CRA.

2.1.3 Trustee Bank

In the NPS system, a designated bank, known as the 'Trustee Bank', holds an account on
behalf of the NPS.
The Trustee Bank is responsible for remitting funds to various entities such as Pension
Funds (PFs), Annuity Service Providers (ASPs), and subscribers based on instructions
received from the Central Recordkeeping Agency (CRA).
Additionally, the Trustee Bank conducts daily reconciliation of data to ensure accuracy and
consistency.
Please note that Axis bank has been appointed as Trustee Bank by PFRDA.
It is governed by PFRDA (Trustee Bank) Regulations, 2018.

2.1.4 Pension Funds

Pension Funds are appointed entities responsible for investing the contributions of all NPS
subscribers into various schemes. Let us discuss the functions of Pension Funds.
Functions of Pension Funds
1. Receiving Subscribers Funds: Pension Funds receive funds from the Trustee Bank for
investment purposes, in accordance with subscriber preferences.
2. Investment Management: They invest the funds into securities as per the investment
guidelines issued by the Authority and the Investment Policy approved by the Board of
Pension Fund.
3. Committees Formation: Pension Funds constitute Investment Committees and Risk
Management Committees to oversee investment decisions and manage associated
risks effectively.

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 4. Net Assets Value Declaration: Pension Funds declare the Net Asset Value (NAV) of
schemes at the end of each working day and communicate it to the Central
Recordkeeping Agency (CRA).
5. Maintenance of Accounts: They maintain accurate and comprehensive books of
accounts for the schemes managed by the Pension Fund to ensure transparency and
compliance.
Please note that we will discuss the List of Approved Pension Fund Managers later.

2.1.5 Annuity Service Providers

Annuity Service Providers are life insurance companies regulated by the Insurance
Regulatory and Development Authority of India (IRDAI) and empanelled with the Pension
Fund Regulatory and Development Authority (PFRDA). They are responsible for investing
the retirement savings of subscribers in annuity schemes and providing a monthly
pension to the subscriber during their retirement years.
List of Annuity Service Providers: There are various Annuity Providers registered under NPS
like, Life Insurance Corporation of India, HDFC Life Insurance Co. Ltd, ICICI Prudential Life
Insurance Co. Ltd and several others. Please note that you do not need to remember their
names.

2.1.6 Custodian
Custodians are entrusted entities within the NPS framework with the following
responsibilities:
1. Safekeeping of Scheme Securities: They hold scheme securities in dematerialized
accounts under the name of NPS Trust.
2. Corporate Actions Notification: Custodians inform Pension Funds about corporate
actions affecting the scheme securities, facilitating informed decision-making.
3. Records Maintenance and Reconciliation: They are responsible for maintaining and
reconciling records of the securities held.
4. Valuation Services: Custodians provide valuation services to Pension Funds to
compute the Net Asset Value (NAV) of the schemes accurately.
Please note that Deutsche Bank AG is the custodian for securities under NPS.
It is governed by PFRDA (Custodian of Securities) Regulations, 2018.

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 2.2 For Government Sector
The architecture for the government sector in the National Pension System (NPS) closely
mirrors that of the private sector. However, there are key differences, notably the presence
of Nodal Offices instead of Points of Presence (PoPs), which serve as the primary points of
interaction for NPS subscribers.

2.2.1 Nodal Offices

Nodal Office means the offices which act as interface between the subscribers and the
central recordkeeping agency and shall include the following. They are to be taken as
separate for Central Government and State Government.

2.2.1.1 Nodal Office (Central Government)

The hierarchical structure in case of central
government is:
Drawing and Disbursing Officer (DDO):
• DDO will collect all the registration forms
and forward to PAO.
• Forward the Switch requests, New Scheme
Preference requests, Change in subscriber
details request, Withdrawal Requests
received from Subscribers to the PAO.
• Forward the grievance of the subscriber to the PAO.
Pay and Account Officer (PAO):
• Forward all the requests from DDO to CRA.

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 • PAO will deposit the contribution amount in the Trustee Bank.
• PAO will raise grievance on behalf of DDO and the subscriber.
Principle Accounts Office (PrAO):
• A Principal Accounts Office will have several functions in the NPS. However, most of
them will be in the nature of monitoring the performances of the Nodal offices under
its jurisdiction.
• CRA will send various alerts to PrAO to facilitate it to carry out the role of a supervisory
entity.

2.2.1.2 Nodal Office (State Government)

The hierarchical structure in case of central government is:
Note: Functions of State Nodal Offices is same as what we
discussed in case of Nodal Offices at Centre.
Drawing and Disbursing Officer (DDO):
• DDO will collect all the registration forms and forward
to DTO.
• Forward the Switch requests, New Scheme Preference
requests, Change in subscriber details request, Withdrawal Requests received from
Subscribers to the DTO
• Forward the grievance of the subscriber to the DTO.
District Treasury Offices (DTO):
• Forward all the requests from DDO to CRA.
• DTO will deposit the contribution amount in the Trustee Bank.
• DTO will raise grievance on behalf of DDO and the subscriber.
Directorate of Treasuries and Accounts (DTA):
• DTA will have several functions in the NPS. However, most of them will be in the
nature of monitoring the performances of the Nodal offices under its jurisdiction. CRA
will send various alerts to DTA to facilitate it to carry out the role of a supervisory
entity.
So, you can clearly see that its just the difference of names and the functions remains the
same in both central and state government.

2.2.2 NPS Trust

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 NPS Trust, under the NPS Trust regulations, is responsible for
monitoring the operational and functional activities of NPS
intermediaries. It is kind of Big Boss.
National Pension System Trust (NPST) was established by PFRDA on
27th February, 2008 as per the provisions of the Indian Trusts Act of
1882.
NPS Trust is governed by PFRDA (National Pension System Trust) Regulations 2015 and is
regulated by PFRDA.
Now, you must have had a doubt that when subscriber invests some money in NPS,
obviously that money is invested by pension funds. So, the pension funds buy bonds,
equity, etc. So, you must be thinking who will be considered the owner of such investments.
Will the owner be a subscriber or the owner will be the NPS Trust?
So, here arises the concept of registered owner and beneficial owner.
NPS Trust is the registered owner of all the all assets under the NPS Architecture. In other
words, the securities are purchased by Pension Funds on behalf of, and in the name of the
NPS Trust.
However individual NPS subscriber remain beneficial owner of the securities, assets and
funds.
Board of NPS Trust:
The Trust is managed by a Board of Trustees appointed by PFRDA:
• One of the Trustees from the Board is designated by PFRDA as Chairperson of the
Board.
• PFRDA appoints a suitable person as Chief Executive Officer of the Trust (CEO) who
shall be responsible for day-to-day administration and Management of the Trust
subject to the superintendence, control and direction of the Board of NPS Trust.
• The Board shall meet once in every three calendar months.
Functions of Board of NPS Trust
• Monitoring Operational and Functional Activities: The Board oversees the activities of
NPS intermediaries to ensure they operate effectively and in line with regulatory
requirements.

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 • Directing Pension Fund Managers: It provides directions and advice to Pension Fund
Managers to protect the interests of subscribers, ensuring that investment decisions
are made prudently and in accordance with regulations.
• Ensuring Compliance through Audits: The Board ensures compliance with regulations
by conducting audits through Independent Auditors, verifying that all intermediaries
and entities within the NPS system adhere to prescribed standards.
• Reviewing Performance of Pension Funds: It reviews the performance of Pension
Funds to assess their effectiveness in managing subscribers' funds and achieving
investment objectives.
• Managing Subscriber Exits: The Board oversees the process of subscribers exiting the
National Pension System, ensuring that it is carried out smoothly and in accordance
with regulations.
• Addressing Subscriber Grievances: It handles subscriber grievances according to
established regulations, providing mechanisms for resolving disputes and ensuring
subscriber satisfaction.
• Administering Individual Pension Accounts: The Board manages individual pension
accounts on behalf of subscribers, ensuring the proper administration and
maintenance of these accounts.
• Protecting Properties and Interests: It safeguards the properties and interests of the
NPS Trust and its beneficiaries, taking measures to mitigate risks and ensure the long-
term sustainability of the system.
Governance of NPS Trust:

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 Note: Business Review Consultant (BRC) is also appointed to assist the Board for
performance review of the PFs.

3 Categorization of NPS
The NPS can be categorized on the basis of Private Sector and Government Sector.

Please note that in case of all citizen model, NPS is voluntary. Do not worry as we shall be
discussing these in detail.

In case of Government Sector, NPS is mandatory for Central Government Employees. It is

also mandatory for State Government Employees if state has adopted NPS (Except West
Bengal All states have adopted NPS). Please note that many states are withdrawing from
NPS.

3.1 NPS- All Citizen Model

3.1.1 Eligibility
• Indian Citizenship: Individuals who are either residents or non-residents of India, as
well as Overseas Citizens of India (OCI), are eligible to participate in the NPS - All
Citizen Model.
• Age Range: Applicants must be between the ages of 18 to 70 years.
• KYC Compliance: Compliance of Know Your Customer (KYC) norms detailed in the
Application Form. This requirement ensures that the identity and other relevant details
of the applicant are verified, promoting transparency and security in the NPS
enrollment process.

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 Additional Information:
• NRIs (Non-Resident Indians): NRIs are individuals who hold Indian citizenship but
reside abroad for various reasons such as employment, education, or personal
preferences. Despite living outside of India, NRIs are eligible to participate in the NPS -
All Citizen Model, allowing them to plan for their retirement.
• PIOs (Persons of Indian Origin): PIOs are individuals who are not Indian citizens
themselves but have Indian ancestry, such as Indian parents or grandparents. Like
NRIs, PIOs may reside outside of India but have familial or ancestral ties to the country.
PIOs are not eligible to participate in the NPS.

3.1.2 Documents Required to open NPS Account

The following documents are required to open an NPS Account:

3.1.3 Types of Accounts

When a person opens an NPS account. There are two types of accounts associated with the
NPS that is Tier 1 and Tier 2. Indian Citizen can open two accounts:

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 Please note that Indian citizen (resident) can open both Tier 1 and Tier 2 account whereas
NRIs and OCIs can open only Tier 1 account.
Please note that Tier 2 account can be opened only when you have active Tier 1 Account.
Now, let us discuss the difference between the Tier 1 and Tier 2 account:
Tier- I Tier- II
Individual Pension Account Optional Account – Require an active Tier I
Withdrawal as per rules/regulations only Unrestricted withdrawals
Minimum Contribution to Open Rs 500 Minimum Contribution to Open Rs 1000
Minimum Contribution per year Rs 1000 No Minimum Contribution
Single Installment shall not be less than 500 Single Installment shall not be less than 250
No Restriction on maximum amount in Tier 1 and Tier 2 Account

3.1.4 Mode of Contribution

• Physical Mode- In the physical mode of contribution, individuals have the option to
make contributions by visiting designated Points of Presence (POPs) appointed by the
Pension Fund Regulatory and Development Authority (PFRDA).
• Online Mode- The online mode offers a more convenient and digital approach to
making contributions to the NPS:
o Online Facility by POPs: Some Points of Presence provide online facilities through
their websites or portals, allowing subscribers to make contributions electronically.
o eNPS Platform: The NPS Trust offers the eNPS platform, an online portal dedicated
to NPS subscribers.
o NPS Mobile Application: Additionally, subscribers can use the NPS Mobile
Application to make contributions conveniently using their smartphones or tablets.

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 3.1.5 Investment Choices
Subscriber will choose Pension Fund Manager. Subscriber will make choice by himself how
to invest his money. Subscribers have the autonomy to select their preferred Pension Fund
Manager from a list of approved entities. These Pension Fund Managers are authorized by
the Pension Fund Regulatory and Development Authority (PFRDA) to manage NPS funds on
behalf of subscribers.
List of Approved Pension Fund Managers in NPS:
• HDFC Pension Management Co. Ltd.
• ICICI Prudential Pension Fund Management Co. Ltd.
• Kotak Mahindra Pension Fund Ltd.
• LIC Pension Fund Ltd.
• SBI Pension Funds Pvt. Ltd
• UTI Retirement Solutions Ltd
• Birla Sunlife Pension Management Ltd
• Others
Please note that the subscriber will make choice between active choice and passive choice.
Also, investment options can be separated for Tier 1 and Tier 2 account.
Active Choice: Active Choice allows subscribers to actively manage their investment
portfolio by selecting specific asset classes and determining the allocation of their
contributions. However, there are maximum limits imposed to ensure diversification and
risk management. For instance, subscribers can choose to allocate their funds to
government securities or corporate bonds upto 100%, but there are constraints to prevent
overexposure to any single asset class like equity, alternate assets. These limits in case of
Tier 1 and Tier 2 are as follows:

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 Passive Choice: Alternatively, subscribers can opt for a passive investment approach, where
their contributions are automatically invested in a pre-defined portfolio based on their
chosen risk profile. There are 3 life cycle funds under which the money is invested:

Depending on the plan, there would be different % of allocation in three asset classes
• Equity (E)
• Corporate Bonds (C)
• Government Securities (G)
The investment in equity will decrease from Aggressive -> Moderate -> Conservative Fund
(this can be understood from the table mentioned below)
The allocation among the asset classes in all the 3 plans keep on changing with age after 35
years of age. Please refer to the following image:

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 Note: You are not required to remember the percentages mentioned above. The above
table is just meant for understanding that the investment in equity decreases as the age
increases.
Now you must be thinking that whether the choices can be changed by the subscriber or
not?
So, please note that the Investment Choice can be changed up to 4 times in a Financial
Year. However, Pension fund can also be changed but once in a financial year.

3.1.6 Withdrawal
Firstly, let us discuss about the Withdrawal under Tier 1 Account then we shall be discussing
Withdrawal under Tier 2 Account.

3.1.6.1 Tier 1 Account

Under Tier 1 Account the withdrawal can be made as follows:

Age Condition: Subscriber can withdraw after Attaining 60 years of age if joined before 60
years of age OR After completion of 3 years if joined NPS after 60 years of age.
Amount Condition: If corpus less than 5 lakh then entire corpus can be withdrawn.
If corpus more than 5 Lakh then:
• Subscriber can withdraw maximum 60% of the corpus as lump sum.
• Minimum 40% of the corpus has to be utilized for purchasing an annuity plan for
receiving the pension.
Please not that entire lump-sump withdrawal is tax-free. However, amount used to
purchase annuity will be tax free but Annuity itself will be taxable.
Now you must be thinking whether it is necessary to withdraw after attaining age of 60?
The answer is NO!
• Continue with NPS till 70: Continuation means one has to keep contributing minimum
amount of Rs 1000 each year. One can exit anytime between 60 and 70.
• Exit from NPS but defer Payments
o Defer receiving the lump sum (60% corpus) till the age of 70 years or withdraw in
installments till 70 years.
o Defer Annuity purchase (40% corpus) for a maximum period of 3 years.

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 Partial withdrawal from the NPS allows subscribers to withdraw a portion of their own
contributions after completion of 3 years, subscriber can withdraw 25% of his/her own
contributions for specific reasons:
• Illness
• Disability
• Education
• Marriage of children
• Purchasing property
• Starting a new venture
A subscriber can partially withdraw up to a maximum of 3 times during his/her entire
tenure in NPS.
The partial withdrawal is Tax-Free.

Age Condition: Subscriber can do premature withdrawal after completion of 10 years if

joined before 60 years of age OR Before completion of 3 years if joined after 60 years of
age.
Amount Condition: If accumulated amount is less than 2.5 lakh, the entire corpus is paid as
lump sum to the subscriber. Else, subscriber can withdraw maximum 20% of the corpus as
lumpsum and minimum 80% of the corpus has to be utilized for purchasing an annuity
plan for receiving the pension. This 20% is not taxable and the 80% is not taxable but
annuity income will be taxable.

The nominee/legal heir can withdraw the entire accumulated corpus OR The nominee /
family members of the deceased subscriber can also purchase annuity, if they so desire.
This will be tax-free.

3.1.6.2 Tier 2 Account

As we have already discussed that there will be No Restriction on Withdrawal from Tier 2
Account.

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 In case of closure of NPS Tier-I (pension account), balance outstanding in NPS Tier-II account
will get withdrawn simultaneously and thereafter transferred to your Bank account.

3.1.7 Charges
Please refer to the following images:

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 The above charges for account opening are in case of physical PRAN card and Physical
Welcome Kit. The charges are reduced in case of non-physical PRAN or welcome kit or both:

Please note that there has been changes in the Pension fund Charges:

Earlier it was 0.0467%-0.09%. This has been updates as:

3.1.8 Tax Benefits (Only in Tier 1 Account)

Section 80C allows deduction for investment made in PPF, EPF, LIC premium, Equity linked
saving scheme, principal amount payment towards home loan, stamp duty and
registration charges for purchase of property, Sukanya Samriddhi Yojana (SSY), National
saving certificate (NSC), Senior citizen savings scheme (SCSS), ULIP, tax saving FD for 5
years, Infrastructure bonds etc.
Please note that tax saving can be made upto Rs 1.5 lakhs under 80C (this includes only
Section 80CCC and Section 80 CCD (1))
Please note that Section 80C includes: 80CCC; 80CCD(1); 80 CCD (1B); 80 CCD (2)
80CCC: Provides deduction for life insurance annuity plan.

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 80CCD (1): Contribution under section 80CCD (1) Maximum deduction under NPS allowed
is least of the following:
1. 10% of salary (in case taxpayer is employee)
2. 20% of gross total income (in case of self-employed)
3. Rs 1.5 Lakh (limit allowed u/s 80C)
Tax-saving can be claimed up to Rs. 1.5 lakhs under Section 80C, including deductions
under Section 80CCC and Section 80CCD (1).
80 CCD (1B): Deduction for NPS: Additional deduction (apart from 1.5 lakh under 80 C) of Rs
50,000 is allowed for amount deposited to NPS account. Contributions to Atal Pension
Yojana is also eligible for deduction.
80 CCD (2): Deduction for NPS: Employers contribution is allowed for deduction upto 10%
of basic salary plus dearness allowance under this section. Benefit in this section is allowed
only to salaried individuals and not self-employed.
There is a section 80CCE which says that total exemption allowed under sections:
80 C + 80 CCC + 80 CCD (1) <= 1.5 lakhs
Separate additional deduction of Rs 50,000 allowed u/s 80CCD(1b)
Benefit under 80CCD (2) is available only under NPS – Corporate Model which we will be
discussing in the later part of the chapter.

3.2 NPS- Corporate Model

The NPS Corporate Model was introduced so that private sector employers can extend old
age security benefits to their employees. It can co-exist with other retirement benefit
schemes like EPF. So, if employer has already introduced EPF, then it can also introduce
NPS.

3.2.1 Eligibility
The following entities are eligible to adopt NPS for its employees as a retirement benefit
scheme:

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 Now, let us discuss the eligibility for subscribers:
For Subscribers:
Indian employees (Resident Indian / NRI / OCI) of a corporate entity which has
implemented NPS in the organization
AND
Aged between 18-70 years are eligible to be registered as NPS subscribers under Corporate
Sector through their employer subject to completion of KYC norms.

3.2.2 Types of Accounts

This is same as what we have discussed in the All-Citizen Model.

3.2.3 Contribution
Under the NPS Corporate Model, contributions can be made flexibly by both the employer
and the employee:
• Equal contributions by employer and employee.
• Unequal contributions by the employer and the employee.
• Contribution from either the employer or the employee.
Please note it’s not mandatory for employer or employee to contribute. Just any one of
them can also contribute.
Mode of Contribution:
• Employers and employees can register for contributions through a Point of Presence
(POP).
• Additionally, they can register through the Central Recordkeeping Agency (CRA) as an
Employee/Corporate under the NPS Corporate Mode, also through a POP.

3.2.4 Investment Choices

Under the NPS Corporate Model, either the employee or the employer can make choices
regarding investment:
• Pension Fund Manager:
1. The choice of Pension Fund Manager
can be made by either the employee or
the employer.
2. The Pension Fund Manager is
responsible for managing the

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 investments of the NPS contributions.
• Investment Strategy: Active or Passive Choice:
1. Active choice allows the investor to actively manage their investment portfolio by
selecting specific asset classes and determining the allocation of contributions.
2. Passive choice involves automatic investment in a pre-defined portfolio based on the
chosen risk profile.
Note- The active and passive choice are same as what we discussed in NPS – All Citizen
Model.
If Employer makes these choices, then the employer will choose Pension Fund and decide
on Asset Allocation through Passive or Active choice on behalf of Employee/Subscriber.
The Employee/Subscriber will have the option to revise the choices after 1 (one) year (i.e.
365 days), if employee does not revise the choices, then choices made by employer will
continue.
If Employee makes these choices then it will be employee who will be choosing the Pension
Fund Manager and the investment choice.
How Often can the Choices be Changed by Subscriber?

3.2.5 Withdrawal
Withdrawal under NPS – Corporate Model is same as what we discussed under All Citizen
Model.

3.2.6 Charges
Charges under NPS – Corporate Model is same as what we discussed under All Citizen
Model.

3.2.7 Tax Benefits (Only in Tier 1 Account)

Under the NPS Corporate Model, both employers and employees can benefit from tax
advantages in the Tier 1 Account:
For Corporates/Employers:
Corporate/employers can claim tax exemption for the amount contributed as employer
contribution towards the NPS accounts of their employees.

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 Up to 10% of the salary (basic and dearness allowance) of employers contribution can be
deducted as ‘Business Expense’ from Corporates Profit & Loss Account as per section
36(1)(iv)(a) of IT Act.
For Employees:
1. Exemption Under Section 80 CCD (1): Employees can avail exemption within the
overall ceiling of Rs. 1.5 lakh under Section 80C/80CCE for contributions made towards
their NPS accounts.
2. Exemption Under Section 80 CCD (1B): Employees can avail an additional exemption
of up to Rs. 50,000 under Section 80 CCD (1B), which is over and above the Rs. 1.5 lakh
deduction available under Section 80C.
3. Employer's Contribution Deduction Under Section 80 CCD (2): Employees can benefit
from the deduction of the employer's contribution up to 10% of their salary (Basic +
DA) from taxable income, without any monetary limit.
Frequently Asked Questions:
Q1. Can employer forfeit its contributions if one resigns from job?
Answer. No, employers cannot forfeit their contributions if an employee resigns from
their job.
Q2. Whether an employee has the facility to avail loan/advances from NPS?
Answer. No, employees do not have the facility to avail loans or advances from NPS.
Q3. Is employer required to create/have separate Trust for NPS?
Answer. No, employers are not required to create or have a separate Trust for NPS.
Q4. Is there any minimum number of employees to Join NPS?
Answer. No, there is no minimum number of employees required to join NPS.
Q5. Can a subscriber shift his/her PRAN from other sector to corporate sector or from one
corporate to another corporate?
Answer. Yes.
• For shifting from one sector (say govt. sector to corporate sector) to another using
Form ISS – 1
• For shifting from one corporate to another – Form CS-S3

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 3.3 NPS- Government Model (Central Government)

3.3.1 Eligibility
The National Pension System (NPS) is mandatory for all Government employees who joined
service on or after January 1, 2004 (except Armed Forces).

3.3.2 Types of Accounts

The types of account remains same as what we have discussed in other models:

While Tier-II accounts in the regular NPS model are voluntary and don't offer tax benefits,
the Government Model offers a unique extension: the Tier-II Tax Saver Account. It is an
optional account with Section 80C benefit (Tax Saver) but with a three-year lock-in. Some
key points regarding this optional account:
1. Tax Benefits: This account qualifies for a tax deduction of up to ₹1.5 lakh under
Section 80C of the Income Tax Act, similar to Tier-I accounts.
2. Lock-in Period: Contributions made to this account are locked in for three years.
3. Investment Choice Limitation: Unlike Tier-I accounts, Tier-II Tax Saver accounts don't
offer a choice between active and passive investment options. However, you can
choose up to three Pension Fund Managers (PFMs) to manage your investments.
4. Pension Fund Change: Pension fund change allowed only after the lock-in period.
5. Asset Allocation: The asset allocation for Tier-II Tax Saver accounts is pre-defined, with
a mix of equity (10% to 25%), debt (up to 90%), and cash/money market/liquid funds
(up to 5%).

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 6. Exception to Closure: While regular Tier-II accounts typically close when the Tier-I
account closes, Tier-II Tax Saver accounts are allowed to remain open until the lock-in
period is complete.
7. Withdrawal on Death: In case of the subscriber's death, the nominee or legal heir can
withdraw the corpus from the Tier-II Tax Saver account before the lock-in period ends.

3.3.3 Contribution
Under the NPS Government Model for the Central Government, the contribution structure
is as follows:
1. Government Contribution: The government will contribute 14% of Basic + DA
effective from April 1, 2020.
2. Employee Contribution: Employees are required to contribute 10% of Basic + DA.
Please not all these contributions will be made in Tier 1 account.

3.3.4 Investment Choices

There are two schemes available for investment that is Default Scheme and Exercising
Choice. Let us discuss these in a little more detail:
• Default Scheme: Under this scheme, following exposure limits have been provided:

The contribution is allocated to three PFMs, viz. SBI Pension Funds Private Limited, UTI
Retirement Solutions Limited and LIC Pension Fund Limited in a predefined proportion.
• Exercising Choice:
o Choice of Pension Fund: They can choose any one pension fund from any of the
pension Funds as we discussed in All Citizen Model and NPS Corporate Model.
o Investment Choice: Can choose among following choices
▪ Default Scheme: As discussed above.
▪ Active Choice: Scheme G (for those who prefer fixed return and less Risk) – 100%
in Govt. Securities. This is basically for those who prefer less risk and fixed
income.
▪ Auto Choice: For Those who prefer high returns can chose from below schemes:

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 • Conservative life cycle fund with maximum exposure to equity capped at 25%
- LC-25
• Moderate life cycle fund with maximum exposure to equity capped at 50% -
LC-50
Note: Aggressive Lifecycle Fund (LC 75) will not be given as option under the
government model.
Therefore, we can deduce options, with a higher equity exposures are excluded by
government model.

3.3.5 Withdrawal
Under Tier 1 Account the withdrawal can be made as follows:
In case of Normal withdrawal, Partial withdrawal and premature withdrawal the scenario is
same as what we have discussed in the All Citizen Model.
But in Case of Event of Death of Subscriber:
• If the total corpus in the account is less than or equal to Rs. 5 lakh as of the Date of
Death of the Subscriber (Government sector), the nominee/legal heir can opt for
complete withdrawal.
• If the amount is greater than Rs. 5 lakh:
o At least 80% of the accumulated pension wealth of the Subscriber must be utilized
for the purchase of an Annuity providing for monthly pension to the Spouse.
o A maximum of 20% can be paid as a lump sum payment to the nominee.

3.3.6 Tax Benefits (Only in Tier 1 Account)

Section 80C allows deduction for investment made in PPF, EPF, LIC premium , Equity linked
saving scheme, principal amount payment towards home loan, stamp duty and
registration charges for purchase of property, Sukanya Samriddhi Yojana (SSY) , National
saving certificate (NSC) , Senior citizen savings scheme (SCSS), ULIP, tax saving FD for 5
years, Infrastructure bonds etc.
Please note that tax saving can be made upto Rs 1.5 lakhs under 80C (this includes only
Section 80CCC and Section 80 CCD (1))

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 Please note that Section 80C includes: 80CCC; 80CCD(1); 80 CCD (1B); 80 CCD (2)
80CCC: Deduction for life insurance annuity plan- Payment towards annuity pension plans
Pension
80CCD (1): Contribution under section 80CCD (1) Maximum deduction under NPS allowed
is least of the following
1. 14% of salary (in case taxpayer is employee)
2. 20% of gross total income (in case of self-employed)
3. Rs 1.5 Lakh (limit allowed u/s 80C)
80 CCD (1B): Deduction for NPS: Additional deduction (apart from 1.5 lakh under 80 C) of
Rs 50,000 is allowed for amount deposited to NPS account. Contributions to Atal Pension
Yojana is also eligible for deduction.
80 CCD (2): Deduction for NPS: Governments contribution is allowed for deduction upto
14% of basic salary plus dearness allowance under this section. Benefit in this section is
allowed only to salaried individuals and not self-employed.
The above can be summarized as:
There is a section 80CCE which says that total exemption allowed under sections:
80 C + 80 CCC + 80 CCD (1) <= 1.5 lakhs
Separate additional deduction of Rs 50,000 allowed u/s 80CCD(1b)
Benefit under 80CCD (2) is available for government servants.
Earlier we have discussed that under Government model there is optional Tier 2 Tax Saver
account. So, let us discuss tax benefit under Tier 2 account.

3.3.7 Tax Benefits (Tier 2 Account)

• Money invested in the Tier 2 account can also provide tax benefits up to Rs. 1.5 lakhs
under Section 80C.
• However, this deduction is not in addition to the Rs. 1.5 lakhs allowed for the Tier 1
account. The total deduction across both Tier 1 and Tier 2 accounts cannot exceed Rs.
1.5 lakhs.
Note: We shall not be discussing NPS model for State Government. As it is same as Central
Government.

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 4 Benefits in NPS and Nominee Details
The National Pension System (NPS) offers a multitude of advantages for subscribers:
1. Low-Cost Product: The NPS boasts low administrative and fund management charges
compared to other retirement products.
2. Tax Benefits: NPS contributions and accumulated corpus attract tax benefits under
various sections of the Income Tax Act, benefiting individuals, employees, and
employers (for employee contributions).
3. Market-Linked Returns: NPS investments are linked to the market, potentially offering
attractive returns for retirement savings growth.
4. Portability with PRAN: The Permanent Retirement Account Number (PRAN) ensures
easy account portability across different jobs and locations.
5. Professional Management: Experienced Pension Fund Managers (PFMs) handle NPS
investments, leveraging their expertise for optimal returns.
6. PFRDA Regulation: The Pension Fund Regulatory and Development Authority (PFRDA)
regulates the NPS, ensuring transparency and investor protection.
7. Flexibility: Subscribers have choices:
o Point of Presence (PoP) - Where they interact for NPS services.
o Central Recordkeeping Agency (CRA) - Manages subscriber accounts.
o Pension Fund Manager (PFM) - Invests their contributions.
o Asset Allocation - Define their investment risk profile. These choices can be
modified later.
8. Transparency: Subscribers can access their NPS accounts online 24/7 for real-time
updates. NPS also mandates public disclosures for greater transparency.
9. Open to All: NPS is a voluntary pension scheme open to any Indian citizen (resident,
non-resident, or overseas citizen) for long-term retirement planning.
Nominee Details in NPS:
1. Maximum Three Nominees: A subscriber can nominate up to three individuals to
receive the accumulated corpus in case of the subscriber's death.
2. One Nominee Mandatory: Having at least one nominee is mandatory for all NPS
accounts.

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 3. Nominee Receives Funds: In the unfortunate event of a subscriber's death, the
nominee(s) will receive the accumulated corpus from the NPS account.

5 NPS Lite
NPS Lite, also known as NPS Swavalamban, was introduced in 2010 with the aim of
securing the financial future of economically disadvantaged individuals. This initiative
targeted those who lacked financial resources to plan for retirement effectively.
The servicing model is of NPS Lite is based on group servicing.
The people forming part of this low-income groups will be represented through their
organizations known as "Aggregators" who would facilitate in subscriber registration,
transfer of pension contributions and subscriber maintenance functions. Helps in servicing
through low charge structure.
It has been discontinued now for new enrollments. As government is promoting Atal
Pension Yojana instead of this.

6 Grievance Redressal for NPS

Grievance resolution for NPS subscribers is governed by the PFRDA (Redressal of Subscriber
Grievance) Regulations, 2015. These regulations ensure that subscribers can address their
concerns effectively through a structured process.
To file a complaint, subscribers
can use the Central Grievance
Management System (CGMS), an
online platform designed for this
purpose. Once a complaint is
lodged, the intermediary involved
is required to resolve it within 30
days of receiving it.
If one is not satisfied, the
escalation can be done to the next
higher level for resolution:
The highest authority is SAT that is Securities Appellate Tribunal.

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