What is National Pension Scheme (NPS)?
Ans – NPS scheme 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. The NPS scheme was launched for government employees from January 1, 2004, and for all citizens of India from May 1, 2009. The NPS interest rate usually ranges from 9% to 12% p.a. You can open a NPS account as Online or Offline. Once the application submitted online for open NPS account after that you will get an Individual PRAN number.
Note: Permanent Retirement Account Number (PRAN) is a unique 12 digit number that identifies those individuals who have registered themselves under the NPS. After allocation of PRAN, the NPS subscribers have an option of receiving a physical copy of their PRAN on a PRAN card
1. NPS Tier I Account: – The subscription to NPS commences with the opening of the Tier I account, which comes with a PRAN (Permanent Retirement Account Number). Your investment in the NPS Tier I account is locked-in until the age of 60. Before the age of 60, you can make partial withdrawals for specific purposes; these include children’s wedding or higher studies, building/buying a house or medical treatment of self/family Under NPS Tier I. When you reach
2. NPS Tier II Account: – You can open the NPS Tier II account only when you already have a Tier I account. Tier II account is a voluntary account with flexible withdrawal and exit rules. Even though it works exactly like your NPS Tier I account, there are certain differences. Firstly, contribution to Tier II NPS has no tax benefits – you can’t claim deductions and on exit, the corpus is taxed. Unlike the Tier I account, there is no lock-in with savings in the Tier II account. You can withdraw from the Tier II account at any time. However, in functionality, both Tier I and Tier II are similar and so is the fund management costs as well as choice of investments. You are required to make an initial minimum contribution of Rs 1000 under the Tier II account at the time of registration. One needs to make an annual minimum Rs 250 contribution annually under Tier II. No any minimum number of annual contributions is mandatory.