Tax Saving With The National Pension System

By | November 26, 2015

Tax Saving With National Pension System

A Retirement Plan for All

The National Pension System is a defined-contribution pension scheme operated by the Government of India. This scheme offers a wide range of investment options for the benefit of employees. The NPS allows employees to decide how and where their pension is invested.

Structure of the National Pension System A Flexi-Pension Plan

The NPS provides two account options:

  • Tier – 1 Account. This is a basic retirement pension account which is available to all citizens. This account does not allow you to withdraw funds before retirement.
  • Tier – 2 Account. This comprises a Prospective Payment System (PPS) account. This account allows you to withdraw some amount before retirement under special circumstances, relating to health care.

How the National Pension System Works

A Voluntary Retirement Savings Scheme

The NPS is a voluntary retirement savings scheme in which you can contribute at least Rs 6,000/- annually. There is no limit on investment. The employee contribution to the NPS is eligible for income tax deduction up to Rs 1 lakh per year.

Extra Tax Benefits for Employers!

The National Pension System gives employers additional tax deduction benefits on the employer contribution (up to 10% of basic and DA) over and above the Rs 1 lakh limit of Section 80C.

Benefits of National Pension System

A Simplified Pension Plan

  • Transparent. The NPS is a transparent and cost-effective system wherein employees can be kept informed of the value of the investment regularly.
  • Easy Sign-Up. Just open an account at the nodal office and get a Permanent Retirement Account Number (PRAN).
  • Portable. Every employee is identified by a unique number, the PRAN, which will remain the same, regardless of the employee’s change of job, location or fund manager.

Benefits for Employers

  • The Government of India provides special tax exemption for contributions towards the National Pension System by employers on behalf of employees.
  • If you are an employer, you can list the NPS contribution as a business expense to claim tax benefits.

Benefits for Employees

  • Both the employee’s and employer’s contributions are eligible for income tax deduction.
  • The NPS contribution is in addition to your Employee Provident Fund investment.
  • As an employee, you can gain by redirecting a large part of your salary into a retirement fund, in addition to saving tax.

Who Can Apply?

Everybody Can Get a Pension Plan:

  • Central Government employees
  • State Government employees
  • Corporates
  • Individuals between the ages of 18 and 60 years
  • Unorganized sector workers

How to Apply?

Getting an NPS Account is Easy:

The Pension Fund Regulatory Development Authority (PFRDA) regulates the National Pension System.

An NPS account can be opened by any Indian Resident or Non-Resident Indian aged between 18 to 60 years. You can visit your nearest PoP (Point of Presence) branch to open the account.

  1. Select A Pension Fund Manager: There are 6 designated Pension Fund Managers (PFMs). A PFM would be responsible for investing the funds and generating returns. You can select or easily change your fund manager, if required.

A list of the designated Pension Fund Managers can be found below.

  • SBI Pension Funds Limited
  • IDFC Asset Management Company
  • Kotak Mahindra Asset Management Company Limited
  • ICICI Prudential Life Insurance Company Limited
  • UTI Retirement Solutions Limited
  • Reliance Capital Asset Management Company Limited

Several PoPs have been established. These act as a customer interface for you, the investor.

  1. Get A Permanent Retirement Account Number: A 16-digit unique identification number is assigned to you on opening an NPS account. This account number will remain unchanged throughout the term of the account.
  1. Documents Required: You will need to submit the following documents along with your application.
  • Identity Proof
  • Address Proof
  • Date of Birth Proof
  • Two recent colour photographs 
  1. Initial Contribution: You will be asked to makean initial contribution at the time of opening the account.
  • Tier – 1 account: Rs 500/-
  • Tier – 2 account: Rs 1,000/-

Still wondering why you should open an NPS account? A National Pension System account is a good tax saving investment option. Apply now and give yourself a steady income, even after retirement.


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