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NPS-All about National Pension System

What is NPS (National Pension Systems)? Who can Join NPS?

New  Pension  System (NPS)  is  a  voluntary  contribution  of  funds by a subscriber for  a  sustained period of time (till the age of 60 years) to enable him to draw pension after he attains 60 years of age.

The New Pension System is  basically  for  people  who  do  not  have  the  benefit  of  pension  after retirement from service.

NPS scheme gives an opportunity to all of them to build up his pension fund over a long period so that after retirement he can draw pension for his sustenance.

Initially, NPS was introduced for the new government recruits (except armed forces) only.

With effect from 1st May, 2009, NPS has been provided for all citizens of the country including the unorganized sector workers on voluntary basis (All Citizen Model).

Brief Intro-NPS

The National Pension System (NPS) was launched on 1st Jan, 2004 by Government of India, with an objective of providing retirement income to all the citizens of India.

NPS aims to institute pension reforms and to inculcate the habit of saving for retirement amongst the citizens of India.

Regulatory Authority for NPS

Government of India established Pension Fund Regulatory and Development Authority (PFRDA) on 10th October, 2003 to develop and regulate pension sector in the country.

PFRDA is main controlling and regulatory authority which is assigned with the task of regulating, monitoring and administrating the operations of National Pension Systems (NPS).

Thus, NPS is being administered and regulated by Pension Fund Regulatory and Development Authority (PFRDA).

For a better understanding of NPS, I am going to jot down here important facts and details about the New Pension System:

Benefits of NPS

NPS is a voluntary contribution of fund for retirement income

NPS gives an opportunity to all of them, who do not have the benefit of pension income after retirement form job.

NPS scheme gives an opportunity to the subscriber to build up his pension fund over a long period so that after retirement he can draw pension for his sustenance.

Agencies/ Entities involved in the NPS

The various entities involved in the scheme are as under:

  • PFRDA (Controlling & Regulatory Body): Pension Fund Regulatory and Development Authority is an autonomous body set up by the Government of India to develop and regulate the pension sector in India.
  • Points of Presence (POP): Points of Presence (POPs) are the first points of interaction of the NPS subscriber with the NPS architecture.
  • The authorized branches of a POP, called Point of Presence Service Providers (POP-SPs), will act as collection points and extend a number of customer services to NPS subscribers.
  • PFRDA has authorized approx. 58 institutions including public sector banks, private banks, private financial  institutions and the Department of Posts -as Points of Presence (POPs) for opening the National Pension System (NPS) accounts of the citizens.
  • Central Record keeping Agency (CRA)-NSDL: The record keeping, administration and customer service functions for all subscribers of the NPS scheme has been assigned to National Securities Depository Limited (NSDL), which is acting as the Central Record keeper for the NPS.
  • NPS Trust (Trustee Bank)
  • Pension Fund Managers: There are six Pension Fund Managers-
  1. SBI Pension Funds Private Ltd
  2. ICICI Prudential Pension Fund Management Company Limited
  3. IDFC Pension Fund Management Company Limited
  4. Kotak Mahindra Pension Fund Limited
  5. Reliance Capital Pension Fund Limited
  6. UTI Retirement Solutions Limited

Who can Join NPS?

Central government employees:

As we know that, NPS is applicable to all new employees of Central Government service (except Armed Forces) and Central Autonomous Bodies joining Government service on or after 1st January 2004.

Any other government employee who is not mandatorily covered under NPS can also subscribe to NPS under “All Citizen Model” through a Point of Presence – Service Provider (POP-SP).

State government employees

NPS scheme is applicable to all the employees of State Governments, State Autonomous Bodies joining services after the date of notification by the respective State Governments.

Any other government employee who is not mandatorily covered under NPS can also subscribe to NPS under “All Citizen Model” through a Point of Presence – Service Provider (POP-SP).


Individual (All Citizen Model)

A citizen of India, whether resident or non-resident can subscribe to NPS, subject to the following conditions:

  • The subscriber should have age between 18-60 years as on the date of submission of his/her application to the authorised branches of Point of Presence (POP)/POP-SP for NPS.
  • The subscribers should comply with the Know Your Customer (KYC) norms as detailed in the Subscriber Registration Form.

Note: Un-discharged insolvent and individuals of unsound mind cannot join NPS

Permanent Retirement Account Number (PRAN)

PRAN is a unique Permanent Retirement Account Number which is issued & allotted to the subscriber on opening the Tier I account and which must be quoted in every transaction done in NPS account just like in case of bank account.

This unique account number will remain the same for the rest of subscriber’s life. This unique PRAN can be used from any location in India.

What is Tier I & Tier II?

There are two types of account available under NPS scheme:

Tier I is the primary account which the subscriber has to open to be able to open Tier II account.

While in Tier I no withdrawal can be made till the subscriber reaches 60years of  age,  in  Tier  II  the  subscriber  can  withdraw  from  his  balance  anytime  he wishes to withdraw.

Thus, we can say that Tier I Account is a non withdrawable account meant for savings for retirement.

On the other hand, Tier II Account is simply a voluntary savings facility. The subscriber is free to withdraw savings from this account whenever subscriber wishes.

Note: No tax benefit is available on Tier II account.

Contribution to Tier I & Tier II NPS Account

To contribute in Tier I and Tier II account, a subscriber is required to make his / her first contribution at the time of applying for registration (minimum contribution Rs.500 for Tier I and Rs.1000 for Tier II) at any POP-SP.

Minimum & Maximum Contribution- Tier I

The NPS subscriber is required to make contributions subject to the following conditions:

  • Minimum amount at the time of Account opening – Rs.500
  • Minimum amount each contribution – Rs.500
  • Minimum contribution per year – Rs.6,000*
  • Minimum number of contributions in a year – one

*Latest update: PFRDA has reduced the amount of minimum contribution to NPS Tier I account, from Rs. 1,000 to Rs. 6000 per year

PFRDA Circular No-PFRDA/2016/19/CORP/4   dated 09 August 2016

Minimum & Maximum Contribution- Tier II

For Tier II, minimum contribution requirements are:

  • Minimum contribution at the time of account opening – Rs.1000
  • Minimum amount each contribution – Rs.250
  • Minimum number of contributions in a year – one
  • Maintain minimum balance of Rs.2000 at the end of each financial year

A subscriber can decide the frequency of the contributions across the year as per his / her own convenience. No maximum limit has been set as of now.

*Latest update: PFRDA has waived off the requirement of maintaining minimum balance Rs. 2000/- at the end of financial year and contribution of at least Rs. 250/- per financial year in Tier II account.

PFRDA Circular No-PFRDA/2016/19/CORP/4   dated 09 August 2016

Withdrawal from NPS

In Tier I funds cannot be withdrawn before attaining 60 years. However in Tier II funds can be withdrawn from his balance anytime he wishes to withdraw.

Withdrawal form Tier I

In Tier I account, a subscriber can withdraw from NPS on his/ her retirement, resignation or death.

Restriction on withdrawal

In case of Retirement

On retirement a subscriber would be required to invest minimum 40% of his / her accumulated savings to purchase a life annuity from any PPFRDA empanelled & Insurance Regulatory and Development Authority (IRDA) approved Annuity Service Providers (ASPs).

In case of Resignation- Around 80% of amount has to be annuitized and remaining can be withdrawn by the subscriber.

In case of death of the subscriber, entire amount will be handed over to the nominee.

Withdrawal form Tier II Account

To withdraw from Tier II account, the subscriber needs to submit form UOS-S12 to the associated POP-SP.

If the request is entered & approved in CRA system by the POP/POP-SP before 1.30 PM, then it will be processed same day, or else to be processed next business day.

The redemption amount may vary due to the variation of NAV. Units are redeemed based on the NAV declared at the end of the processing day.

On date of processing with addition of 3 days, the funds are transferred from the Trustee Bank -to subscriber’s bank account as registered in the CRA system.

Nomination facility in NPS Account

Nomination facility is available in NPS account. But unlike a Bank’s account nominations can be made in favour of three (3) persons.

Mode of Contribution to NPS Fund

Subscribers of NPS scheme can contribute to fund through Cash or Cheque.

In case of contribution through Cheque, credit to account will be made only on realization of the cheque.

Rate of Return – NPS

There is no assured rate of return as NPS is a market-linked product and therefore, offers returns based on the fund performance.

Benefits of NPS

Some of the benefits of the National Pension System (NPS) are:


New Pension System (NPS) is considered as transparent as the subscriber can view and track the real time value of contribution funds invested in the pension fund schemes by accessing the NPS account online.

Cost Effective:

Considering the low maintenance charges of NPS, it is considered as cost effective too.


NPS is portable too, subscribers is identified by their unique permanent account number unique number (PRAN) which is portable  and will remain same even if subscriber gets transferred to any other office or from one location to another.

Regulated by PFRDA:

NPS is regulated by Pension Fund Regulatory and Development Authority (PFRDA). With transparent investment norms & regular monitoring and performance review of fund managers by NPS Trust, it is considered as safe as well.

Tax Benefits – NPS

At present, the tax treatment for contribution made in Tier I account of NPS is Exempted-Exempted-Taxed (EET) category i.e., the amount contributed is entitled for deduction from gross total income upto Rs.1.50 lakh (along with other prescribed investments) as per section 80C (as per the provisions of the Income Tax Act, 1961 as amended from time to time).

Thus, Individuals contributing to NPS would enjoy tax benefits on their contributions as under:

  • Tax deduction up to 10% of Salary (Basic + DA) under Section 80 CCD (1) within the overall ceiling of 1.5 Lakh under Sec 80 CCE
  • NPS also reduces your tax liability by an additional deduction of 50,000/- under section 80CCD (1B) per annum (applicable from FY 2015-16 and onwards)

I am here concluding this post with quick & short highlights of national pension system.


  • Voluntary contributory pension scheme
  • Regulated by PFRDA, a Statutory body by an Act of Parliament
  • Primary objective is enabling systematic savings during the working life of the subscribers
  • Portability-the NPS account (PRAN) remains the same irrespective of change of employment or geography.
  • Minimum annual contribution of Rs. 6000 a year
  • Option to choose your Fund Manager
  • Option to choose your allocation between Equities, Govt. Bonds & Govt. Securities
  • Start getting pension after age 60
  • Minimum term 10 years
  • Low Cost of operations-with 0.01% as Fund Management Charge, NPS is one of the World’s least cost investment options

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About Shubham Anand

Shubham Anand, the founder of TaxWinner.in, is a Chartered accountant, law graduate and personal finance & technology enthusiast. He loves writing about taxes, personal finance, tax planning, the latest technology, and much more. With a passion for technology and the intricacies of personal finance, he believes that financial literacy is the ultimate life hack.

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