National Pension Scheme (NPS) is one of the most popular investment and retirement planning tool available in India. Many of us prefer it due to the additional tax benefits while few of us stay away from it due to long lock-in period, min 40% of retirement corpus being turned into annuity and being taxed. These are things everyone knows. However, in this article, I will tell you about 9 things you did not know about NPS.
Partial Withdrawals From Tier 1 / Can NPS Tier 1 Be Withdrawn?
One frequent question about NPS is that complain about NPS is that the money is locked in Tier 1 of NPS upto the age of 60 years. However, what many people do not know is that NPS Tier 1 allows you to withdraw part of your funds after some duration for specific requirements.
As per NPS rules, after minimum 3 years of investing in Tier 1 of NPS, you can withdraw upto 25% of the Tier 1 corpus. Point to be noted is that this 25% is the contribution amount without considering the appreciation or returns achieved.
This corpus can be withdrawn for following scenarios:
- Higher education of Children
- Marriage of Children
- Purchase or Construction of house
- Critical Illness
Remember that you can make only three such withdrawals in entire lifetime and there should be a gap of minimum 5 years between two withdrawals.
You can submit the partial withdrawal process online by logging into your NPS account.
Same Day NAV
After recent changes, you can now buy NPS units based on same day NAV.
To be able to do this, you have to first register for the D-Remit facility on NPS portal and then link your bank account to it. On registering in NPS portal, a Virtual ID will be generated and sent to your registered mail id. Note that you have to place separate D-Remit request for Tier-1 and Tier-2 and two different Virtual ID will be generated for these.
In the mail, you will have details about the Virtual ID for each Tier as well as the IFSC Code/Beneficiary Bank details. You will have to use these details and add the Virtual ID as account number in your bank.
Once the beneficiary is successfully added, your D-Remit facility is active and you can invest in NPS by online transfer of money.
To get the same day NAV, the cut-off for receiving money in virtual account is 9.30am. So ensure you are transferring the funds accordingly. This way, if you anticipate the market to fall or see it falling in pre-opening session, you can quickly buy NPS units and benefit in the long run.
People often said that NPS does not have SIP facility. And since most of us are not financially disciplined, investments into NPS were irregular. This problem is now sorted.
All you have to do is register for D-Remit facility and then generate a Virtual ID on NPS Portal. Once Virtual ID is generated, you just have to give a standing instruction to your bank about the frequency and amount you want to pay to NPS. This will start a SIP where based on your inputs, NPS units will be purchased.
NPS For NRIs
NPS is one of the few schemes in which even Non Resident Indians (NRI) can open an account and contribute.
Any NRI individual within the age limit 18 – 60 years can open the NPS account online using either Adhaar Card or PAN and Bank Account Verification. However they can open NPS only for Tier-1. Tier-2 accounts are not allowed for NRIs.
Following are the steps to be followed.
Note – NRIs can open NPS only for Tier-1. Tier-2 accounts are not allowed
Tax Benefits on Tier 2
So far, tax benefits on NPS were restricted only on Tier 1. But the problem with Tier 1 is that your money is locked until the age of 60 years. To resolve this problem and encourage investors to invest in NPS while availing tax benefits, amendment has been done in NPS rules.
Now, you can also avail Tax benefits on the amount invested in Tier 2 of NPS. The tax benefits can be availed under 80C. And just like ELSS, Tier 2 Tax Saving account will have a lock-in period of 3 years. Minimum investment will be 1000/- rupees and subsequent contribution will be minimum 250/- rupees.
Note – Tier 2 Tax Saving option is available only for Central government employees as of now
If for some reason, you do not want to wait until turning 60 and want to exit NPS beforehand, make use of the pre-mature exit facility.
As per the terms of pre-mature exit, you can exit from NPS anytime. However, you will be given only 20% as lumpsum while the remaining 80% will be turned into annuity for monthly pension.
However if the total corpus is less than 2.5 Lakh, then entire corpus can be withdrawn.
Note – Premature exit is allowed only for those who have subscribed to NPS for minimum of 10 years.
Withdrawing Entire Tier-1 Corpus
We all know that in Tier-1, only 60% corpus can be withdrawn while remaining 40% has to be used for annuity purchase. However, there is one condition when you can withdraw your entire Tier-1 corpus. At retirement, if the total accumulated pension corpus is less than or equal to Rs. 5 lakh, subscriber can opt for 100% lumpsum withdrawal.
Managing Fund Manager
NPS corpus is managed by Fund Managers. As of now, there are 7 fund managers – HDFC, ICICI, LIC, SBI, Kotak, Aditya Birla and UTI.
You can choose any fund manager as per your liking. NPS also allows you to have different Fund Managers for Tier 1 and Tier 2 accounts. Also, you have the flexibility to change your fund managers once a year.
NPS Pension Calculator
Investors can now make use of in-built NPS Pension calculator to help determine the corpus you will be able to make at retirement basis the SIP you make now.
All you have to do is enter your basic details like Date Of Birth, SIP amount, return rate expected, annuity percentage you want to keep (min is 40%) and the annuity returns you expect. Once you fill in the details, you will get rough idea on the total corpus you will be able to make and the annuity corpus along with expected pension per month. You can click on NPS Website