Last week we wrote about NPS – particularly with regard to the various withdrawal options that it offers. Severall readers wrote in and it slowly became apparent to us that though NPS per se has been introduced years ago, due to the various amendments made therein over time, investors are rather hazy about the updated latest features of the product. Hence, we propose to run a three part series on NPS detailing various aspects of the same such that at the end of the day, readers get reacquainted with what is essentially an excellent retirement investment product.
Opening NPS Account: Get an application form from any of the Point of Presence Service Providers (POP-SPs) consisting of public sector banks, post offices, some private banks, financial institutions and their branches. Copies of proof of identity and residence (passport, Aadhar card, ration card, voter ID, driving licence, utility bills, etc.) along with the application form need be submitted. Carry the original document for verification. You may also download the form from npscra.nsdl.co.in. The process is very easy if your mobile is linked to Aadhaar card. Just log on to enps. nsdl. com, key in your Aadhaar number and you will receive a one-time password (OTP) on your mobile. After validating it your details and photo will automatically get filled up in the online form. You may upload a scanned signature and a photograph if you do not want the Aadhaar picture.
If your mobile is not linked to your Aadhaar, send a request to the UIDAI to update your mobile details. The form can be downloaded at uidai.gov.in/images/application_form _11102012.pdf Print the form you have filled on-line, paste your photograph and sign it. This form should then be sent to the Central Recordkeeping Agency (CRA) at: Central Record Keeping Agency (eNPS), NSDL e-Governance Infrastructure Limited, 1st Floor, Times Tower, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013. CRA maintains all the NPS accounts, just like a depository maintains demat accounts for shares.
After you upload the form, you will be routed to a payment gateway for the initial contribution to your NPS account. The minimum amount is ` 500 per contribution with minimum of ` 6,000 per FY. You can pay by debit or credit card or Internet banking. You will receive a welcome kit from the PFRDA in a few days containing a Permanent Retirement Account Number (PRAN) card consisting of a 12-digit unique number. PRAN is portable. A subscriber can retain his PRAN throughout his life, even when he changes job or residence. You can have only one NPS account as is the case for PPF. Similarly, no joint account is possible.
Salient Features 1.Structure: The main mandatory account is the Tier-I account. Tier-II is an add-on having all the parameters identical with the Tier-I, but there is no tax deduction available and consequently, there is no restriction on any amount of withdrawals any time and any number of times, provided a minimum balance of ` 2,000 is maintained at the end of the FY. Any individual can opt for such add-on only after you have contributed at least the minimum contribution of ` 6,000 to Tier-I. This Tier-II is comparable with any MF scheme (other than ELSS) and can be likened to behave like a savings bank account, with much higher returns. It attracts the provisions of tax on capital gains. 2.At Maturity: When you attain the age of 60 years or super-annuation in accordance with the service rules, you have to use a minimum of 60% of the pension wealth to purchase a life annuity and withdraw the rest 40%. If closure is sought earlier than the age of 60 years, say, when the person opts for early VRS or resigns or desires to discontinue for any reason whatsoever after a minimum holding period of 10 years,, minimum 80% of the accumulated capital is to be used to buy the annuity.
The recent FA17, with a view to make the scheme more attractive, has provided further relief to an employee subscriber of NPS. Sec. 10 has been amended to provide for an additional exemption on partial withdrawal not exceeding 25% of the contribution made by an employee. For instance suppose your corpus at the end of its tenure is ` 2 lakh, consisting of your contribution of ` 1 lakh and a matching contribution of your employer. You can withdraw ` 25,000 which is 25% of your contribution during its tenure and ` 70,000 which is 40% of the balance ` 1,75,000 at the end of its term. The total works out at ` 95,000. On the other hand, if you do not withdraw any amount during its tenure, you will be allowed to withdraw only ` 80,000. All this is tax-free. With the rest of the amount you can buy an annuity which is taxable in your hands. 3.Annuity: You can opt for any of the annuities offered by any of the empanelled insurers — ICICI Prudential, LIC, Kotak Mahindra, Reliance Capital, SBI, HDFC, DSP Blackrock and UTI. LIC happens to be a default option. You can change the insurers at will, but only once a year.
Following are the generic annuities the subscriber to choose from:
1.For life at a uniform rate to the annuitant only.
2.For 5, 10, 15 or 20 years certain and thereafter as long as the annuitant is alive.
3.For life with return of purchase price on death of the annuitant.
4.For life increasing at a simple rate of 3% p.a.
5.For life with a provision of 50% of the annuity payable to spouse during his / her lifetime on death of the annuitant.
6.For life with a provision of 100% of the annuity payable to spouse during his / her lifetime on death of the annuitant.
7.For life with a provision of 100% of the annuity payable to spouse on death of the annuitant and with return of purchase price to the nominee on death of the spouse.
The last one is the default annuity. If the pension wealth is ` 2 lakh or less, you shall have the option to withdraw the entire pension wealth without purchasing an annuity. However, if it is more than ` 1 lakh but age is less than the minimum age required for purchasing any annuity you shall continue to subscribe to the NPS, until you attain the age of eligibility.
If you desire to defer the purchase of annuity, you can do so for a maximum three years from the date of attainment of age of superannuation. The intention to do so has to be declared in writing in the specified form at least 15 days before retirement. Moreover, if you do not desire to withdraw the balance amount, after purc$til the age of seventy years when it would get automatically credited to your bank account. During this period of deferment you can withdraw therefrom in maximum 10 annual installments or withdraw the entire amount at once.
The annuity and all the withdrawals will be paid through direct transfer to the subscriber’s bank account.
Next time we shall examine other aspects of NPS such as cost, the various investment options, nuances of tax treatment and finally whether it makes a good investment or not.
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