In effect since January 2004, the National Pension System(NPS) is a cohesive plan designed to help individuals maintain financial independence post retirement.
One of the main objectives driving the NPS scheme is making pension plans available even to low income earners across the country.
The NPS structure consists of a system of points of presence (POPs), a central record keeping agency (CRA) and several pension plans.
The National Pension System is basically in place to encourage subscribers to save money and gather a corpus,which they can be withdrawnand converted to an annuity to earn regular pension, at the age of 60 years.
How should I opt for an NPS account?
You can apply for an NPS account either online or offline.
- Online: You can apply online through the e-nps facility
- Offline: You can visit any empanelled banks, or other POP service providers to fill out a form and apply.
Your NPS account may be of two types:
- Tier I
NPS Tier I is the primary account for your pension system. You need to make a payment of Rs. 500 minimum at the time of application, and a minimum of Rs. 6,000 annually.
- Tier II
The Tier I account is mandatorybefore availing a Tier II account. This acts as an add-on savings account and has no withdrawal restrictions.
While the Tier I account enjoys certain tax benefits, the same is not applicable to Tier II. Calculate the tax amount using the tax calculator to determinethe most appropriatefinancial plan.
NPS schemes are cost-effective in nature owing to the low operational costs and increased transparency in the cost structure. Moreover, these schemes also offer tax benefits. Low income earners must definitely consider investing in NPS after considering NPS tax benefitsas part of their investment &retirement plan.