• By ADMIN
• Posted 09 Jul, 2023
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FAQs on Investment in National Pension Scheme (NPS) in India

Q1: What is the National Pension Scheme (NPS)?

The National Pension Scheme (NPS) is a government-sponsored pension program in India. It is designed to provide retirement income to individuals and encourages long-term savings for retirement.

Q2: How does the NPS work?

Under the NPS, individuals can contribute to their pension account during their working years. These contributions are invested in a mix of equity, corporate bonds, and government securities, based on the investor's preference and risk appetite. The accumulated amount is then used to provide a pension income during retirement.

Q3: What are the tax benefits of investing in NPS?

Investing in NPS offers tax benefits under Section 80CCD(1) and Section 80CCD(2) of the Income Tax Act, 1961. Tax benefits are available on both employee and employer contributions, subject to certain limits. Contributions up to ₹1.5 lakh under Section 80CCD(1) are eligible for tax deductions, and an additional deduction of up to 10% of salary (basic + DA) under Section 80CCD(2) is available for contributions made by the employer. In addition to the above, an assessee can claim up to Rs.50K under Section 80CCD(1B) in his individual capacity.

Q4: Can I withdraw the entire NPS corpus at once?

No, the NPS is designed to provide a regular pension income during retirement. At the time of retirement, you can withdraw a maximum of 60% of the accumulated corpus as a lump sum, while the remaining 40% must be used to purchase an annuity to provide a regular pension.

Q5: How does NPS contribute to future savings?

By investing in NPS, you build a retirement corpus that will provide a regular income during your post-employment years. NPS helps you accumulate savings for the future, ensuring financial security and a comfortable lifestyle during retirement.

Q6: Can I switch between NPS investment options?

Yes, NPS offers two investment options: Active Choice and Auto Choice. Under Active Choice, investors can decide the asset allocation between equity, corporate bonds, and government securities. Auto Choice invests based on the investor's age, gradually shifting to a more conservative investment mix as retirement approaches. Investors can switch between these options once every financial year.

Q7: Can I open an NPS account independently or only through my employer?

Both employed and self-employed individuals can open an NPS account. Employed individuals can have contributions made by both themselves and their employers, while self-employed individuals can make voluntary contributions.

Q8: Can I have multiple NPS accounts?

No, as per NPS regulations, an individual can have only one NPS account, either in the Tier-I (mandatory) or Tier-II (optional) account. It is advisable to consolidate multiple accounts, if any, into a single account.

Q9: Can I calculate the approximate wealth-building value based on a hypothetical investment example?

Yes, you can estimate the approximate wealth-building value using the NPS calculator available on the official website of the Pension Fund Regulatory and Development Authority (PFRDA). The calculator considers factors such as investment amount, age, and expected returns to provide an estimate of the accumulated corpus at retirement. Please note that the actual returns may vary based on market performance and the investment choices made within the NPS.

Q10: Can I open an NPS account if I am an NRI (Non-Resident Indian)?
 Yes, NRIs are eligible to open and invest in an NPS account. However, tax benefits may vary based on the individual's residential status and applicable tax regulations.

Q11: Can I make additional voluntary contributions to my NPS account?
Yes, NPS allows for voluntary contributions, known as Tier-II accounts, which provide flexibility in making additional investments beyond the mandatory Tier-I contributions.

Q12: Are there any penalties for premature withdrawal from the NPS?
Partial withdrawals are permitted under certain circumstances, such as for higher education, medical emergencies, or purchasing a residential property. However, premature withdrawal before the age of 60 may attract penalties and affect the tax benefits availed.

Q13: Is there any flexibility in the choice of annuity providers at the time of retirement?
Yes, NPS subscribers have the flexibility to choose from various annuity service providers to purchase the annuity. The annuity provider determines the pension amount and payout options.

Q14: Can I change my fund manager or pension fund at any point?
Yes, NPS allows subscribers to change their fund manager or pension fund once per financial year. This flexibility enables investors to switch based on performance or other factors.

Q15: What happens to my NPS account if I change my job?
If you change jobs, your NPS account remains active. You can choose to continue contributing to the same account or open a new account with the new employer. Alternatively, you can opt for an Individual NPS account to maintain continuity.

Q16: Can I contribute to both the Employee Provident Fund (EPF) and NPS simultaneously?
Yes, it is possible to contribute to both the EPF and NPS simultaneously. This provides an opportunity to diversify retirement savings across different investment vehicles.

Q17: Are there any charges or fees associated with NPS?
NPS has certain charges and fees, including account opening charges, annual maintenance charges, and transaction charges. These charges are deducted from the NPS account and are subject to change as per the regulations.

Q18: Can I continue contributing to NPS beyond the age of 60?
Yes, you can continue contributing to NPS voluntarily even after attaining the age of 60. However, the tax benefits associated with NPS contributions may no longer be applicable after retirement.

Q19: How can I monitor the performance and growth of my NPS investments?
NPS provides regular updates and statements that enable subscribers to monitor the performance of their investments. The NPS portal and mobile application provide access to account details, contributions, and investment performance.

Q20: Can I withdraw the entire accumulated corpus at the age of 60?
At the age of 60, NPS subscribers can withdraw a maximum of 60% of the accumulated corpus as a lump sum. The remaining 40% must be utilized to purchase an annuity that provides a regular pension income.

Disclaimer: The information provided in this FAQ is for general informational purposes only and should not be considered as financial advice. Please consult with a qualified financial professional for personalized guidance and advice regarding your investment decisions in the National Pension Scheme (NPS).