With the Budget 2016 making the National Pension Scheme (NPS) more attractive, many individuals, particularly the salaried class, are looking at this avenue for tax saving. Earlier the NPS came under the Exempt-Exempt-Taxable (EET) status wherein the contributions to the account and interest/accumulation was tax free. However, the withdrawal was taxable. From this Financial Year 2016-17, NPS will be partially EEE. This is because the Government has announced that 40% of the withdrawal amount will be tax free in the hands of the investors. However, if you use the whole withdrawal amount from your NPS for buying an annuity, it would be totally tax free. Also, your investment in NPS of up to Rs.2, 00,000 can be claimed as deduction from your gross taxable income, under Sections 80 CCD 1 and 1B. This is precisely the reason why you should look at opening an NPS account. Here’s the process.
Prerequisites – You need to have a PAN linked bank account or Aadhaar number. The bank account must be in any one of the 22 banks that are empanelled with the National Securities Depository Limited (NSDL). If you want to use your Aadhaar number for opening the NPS account, your mobile number needs to be linked.
Go to the NPS website – You need to go to http://www.npstrust.org.in/. Click on ENPS (NPS ONLINE). Go to the Registration link. You have options such as individual subscriber/corporate subscriber, Citizen of India/Non Resident Indian, among others.
Using PAN – If you choose to register using your PAN, you need to choose the bank account to which your PAN is linked. The bank would charge you Rs.125 plus taxes for verifying your Know Your Customer (KYC) norms. This will be debited from your bank account.
Using Aadhaar – In this case, you will be asked to key in your Aadhaar number and a One Time Password will be sent to your registered mobile number for authentication.
Fill in the application form – Details such as your name, date of birth, address and bank account number. The application would also allow you to choose the Pension Fund that you want. You can also choose the asset allocation that you prefer. You will need to upload your photograph and digital signature for completing the form.
Mail the form – This process is not completely online. You need to print the application form and mail it to NSDL within 90 days of filling it.
Get your PRAN – After submitting your online application, you will get a Permanent Retirement Account Number (PRAN). Usually this happens within minutes of submitting the application. However note that it might take a few days to get your PRAN, depending on the number of applications submitted to NSDL. This is the time taken to process your application form. Investments in NPS can be made using your PRAN.
Invest without funds too – It is possible to invest in NPS using your Credit Card. However, you would need to pay 1% of the investment as fees for using payment gateways (to make investments in NPS).
Wondering what will happen if you stop investing? Your account will be frozen and you will not be allowed to transact until you pay up the minimum balance per year, which is fixed at Rs. 6,000. You also need to pay a penalty of Rs. 100 per year (for all the years you didn’t contribute). Premature withdrawals might be allowed under special circumstances. However, you will need to invest 80% of the amount in annuities while the rest can be taken as a lump sum.
Opening an account online is convenient and easy. The best part is that you can contribute to your NPS account online using the NPS Trust website. Go ahead! Open that NPS account now and save taxes.