National Pension System

EXTRA tax benefit

EXTRA happiness
NPS taking care of your tax saving investment.

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 1. Introduction to NPS

Tax Benefits Flexible Systematic Build Corpus Creating

Structure Savings Happiness

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1. a) What is NPS

Pension Scheme by Govt of India : National Pension System (NPS) is a Defined

Contribution Pension Plan introduced by the Government of India for all citizens of
India. This investment plan gives a regular income post retirement.

Build Corpus for Retirement: NPS provides a platform for savings to create corpus, to
enable subscribers for purchasing annuity post retirement

Retirement Income: NPS is an effort of the Government towards sustainable solutions

to provide retirement income

Better Returns: Individual invests during the earning phase of life, this money is
invested in the market related products and earns returns on it, and on retirement
individual gets pension from the accumulated corpus.

Monthly Income: NPS assures monthly income to ensure dignified life in old age.

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1. b) PFDRA – Regulator for NPS

On 23rd August, 2003, Interim Pension

Based on the recommendations
Fund Regulatory & Development
of the OASIS report, Government
Authority (PFRDA) was established
of India introduced a new
through a resolution by the Government
Defined Contribution Pension
of India to promote, develop and
System for the new entrants to
regulate pension sector in India. The
Central/State Government
contributory pension system was notified
service, except to Armed Forces,
by the Government of India on 22nd
replacing the existing system of
December, 2003, now named the
Defined Benefit Pension System.
National Pension System (NPS) with
effect from the 1st January, 2004.

The Government of India had, in

the year 1999, commissioned a
national project titled “OASIS”
(an acronym for old age social &
income security) to examine
policy related to old age income
security in India.
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1. c) History of NPS

2004 2009 2011

NPS was introduced as All Citizens of India Corporate
a Defined Contribution were allowed to open Sector Model
Scheme for all new NPS accounts as a was
recruits in Central and voluntary pension introduced
State Government scheme by PFRDA

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1. c) Models @ NPS

All Citizens Model

Corporate Sector
Model

Govt. Sector Model

1. d) Types of NPS Category - Individual (All Citizen Model)

• Any citizen of India can open an NPS

account. This is termed as an individual
NPS account.
• NRIs as well as OCIs can also open NPS
accounts.
• NPS account holder has flexibility to
choose various investment options
available in NPS structure.
• NPS account holder can select Pension
Fund Manager Selection and choose
scheme as per his/her choice.
• Individual can contribute any amount
towards building the corpus for post
retirement life.
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1. e)Types of NPS Category - Corporate Sector

Any Company registered in India may register themselves as a ‘Corporate NPS Entity’.
The employees of such a registered company may then enroll for NPS.
Corporate NPS facilitates Employees to on board NPS through their Corporates within the purview
of their Employer – Employee relationship
The employee as well as the corporate both can contribute to the employees NPS
account. These contributions can be as follow:

Equal contribution Unequal contribution Either Or –

The employee as well The employee and In this case either
as the company the company employer contributes on
contributes equally to contribute in behalf of the employee or
the employee’s NPS different percentages. employee contributes at
account (Similar to PF). individual capacity.

(Eg : If the salary is INR 100 and the employee opts for NPS, the he/she gets INR 90 as salary and
INR 10 is contributed as NPS employer contribution). Hence at no additional cost to the company,
the company is able to offer a tax saving and a pension investment plan to its employees.

Company* - Entities registered under Companies Act, Entities registered under various Co-operative Acts, Registered Partnership Firms, Registered Limited Liability Partnership (LLP) Firms,
Central Public Sector Enterprises, State Public Sector Enterprises, Proprietorship Concerns, Trust / Societies, Foreign Companies registered u/s 591 to 608 of the Companies Act for having
place of business in India, Anybody incorporated under any act of Parliament or State legislature or by order of Central / State Government 8
1. f) Features of NPS

Portable Flexible
Retirement account (with unique Choice of fund managers, investment
PRAN) may be retained across options, annuity plans, annuity service
employers, location etc. providers and Point of Presence (POPs)

Economical
Unique tax benefits
Lowest cost investment product
NPs offers very unique Tax benefits
currently available in the market. All
across all Government, Individual &
charges in NPS are so nominal .Fund
Corporate Sector
management charge for NPS is 0.01%
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1. g)Triple Tax Benefits

• Individual contribution is eligible for deduction up to Rs 1.5 lakh limit

from the taxable income u/s 80C. This means that NPS is also an
80C investment tool under 80C.

• Individual Contribution is eligible for Additional deduction up to INR

50,000 u/s 80CCD(1B) from the taxable income. This is over and
80CCD (1B) above 80C

• Employer Contribution up to 10% of salary (Basic +DA) is deductible

from taxable income u/s 80CCD(2) of Income Tax Act. This benefit is
80CCD (2) over and above 80C & 80CCD(1B).

Note : As per New Tax Regime, tax exemption for Employer contribution in NPS, PF &
Superannuation is capped upto Rs 7.5 lacs pa in FY 20-21
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Illustration - Tax Benefit beyond 80 C

Head Particulars Without NPS With NPS

Salary Basic (40% of Gross) 20,00,000 20,00,000
HRA (50% of Basic) 10,00,000 10,00,000
Special Allowances 16,63,800 14,63,800
Corporate Contribution – EPF 2,40,000 2,40,000
Corporate Contribution - Gratuity 96,200 96,200
Corporate Contribution - NPS 0 2,00,000
Total Salary 50,00,000 50,00,000
Corporate
Contribution
Deductions 80CCE 1,50,000 1,50,000 for NPS is
Corporate Contribution – EPF 2,40,000 2,40,000 deducted from
Corporate Contribution – Gratuity 96,200 96,200 any flexi
Corporate Contribution - NPS [80CCD (2)] 0 2,00,000 component of
the salary and
Individual Contribution to NPS [80CCD (1B)] 0 50,000 invested by
Total Deductions 4,86,200 7,36,200 the Corporate
as Employer’s
Taxable Salary 45,13,800 42,63,800 Contribution
Change in Taxable Salary 2,50,000
Tax Saved @ 30% 75,000

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2. NPS Ecosystem

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2. a) NPS Architecture

PFRDA: On 23rd August, 2003, Interim Pension Fund Regulatory & Development Authority (PFRDA) was established
through a resolution by the Government of India to promote, develop and regulate pension sector in India.

NPS Trust: This is the Trust body formed for NPS. It is responsible for taking care of the funds under NPS by
prudently monitoring / auditing portfolio of Pension Fund Manager on regular basis

Point of Presence: Acts as first point of interaction for subscriber and is responsible for account opening,
receiving contributions and instructions from Subscribers and transmission of the same to designated NPS
intermediaries. HDFC Bank is a POP for NPS.

Pension Fund Manager: To be responsible for managing the retirement savings of subscribers under NPS

Central Recordkeeping Agency: responsible for recordkeeping, administration and customer service functions
for all subscribers of NPS

Annuity Service Provider: responsible for providing Annuity Service after Subscriber exits from NPS

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2. b) Stages of NPS

You get regular

You invest
You get pension post
money while
returns on the retirement from
you are
invested value accumulated
earning
corpus

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3. How does NPS work?

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3. a) Point of Presence – HDFC Bank Limited
Background
• Regulator has appointed 91 Point of Presence (PoP) across the industry.
• HDFC Bank became a Point of Presence (PoP) to distribute NPS in Feb ‘16 and
commenced active sourcing in Dec ’16.
• Bank has tied up with NSDL and K Fintech who are the Central Record Keeping Agency
(CRA) appointed by regulators PFRDA for processing NPS accounts.
• Bank has now enabled digital paperless enrollment facilities through both the CRAs.
• Subscriber has to choose any one Point of Presence (PoP) to opt for NPS account.

PoP Service offered by Bank

• Corporate on-boarding/registration • Subscribers personal, contact & other details
modification
• NPS roll out planning at corporate level
• IPIN/TPIN reissue
• Employee NPS Awareness Sessions
• Switch / Withdrawal / Scheme Change / PFM
• Individual / Employee Enrollment on - line
Change / Sector Shifting etc.
• Contribution Upload Process
• Guidance/Assistance in selection of Annuity
• Query handling / other services Service Provider. 16
3. b) NPS – Types of Accounts

Subscriber have to open Tier 1 account compulsory to start NPS however Tier 2 is optional.

TIER 1 Account TIER 2 Account

• Investment Account
• Pension Account
• This is a voluntary . To open Tier
• This is a mandatory account..
2 account ,Tier 1 account is
• Restricted & controlled
mandatory.
withdrawal
• Subscribers are free to withdraw
• Eligible for Tax Benefits
anytime
• Minimum contribution of Rs. 500
• No tax benefits. It will attract
at the time of account opening
capital gains.
• Minimum contribution of Rs.
• Funds are invested in a similar
1000 in a financial year
manner as Tier 1
• Minimum contribution of Rs.
1000 at the time of account
opening
• Rs. 250 is the minimum amount
per contribution 17
3. c) Pension Fund Managers - PFM

PFMs are responsible for managing the subscribers fund invested under NPS. The
Regulator PFRDA has appointed 7 Pension fund managers. Subscribers can select any one
of below mentioned PFM. These fund managers are expected to make NPS investments as
per the guidelines given by PRFDA.

HDFC Pension Management LIC Pension Fund Limited

Company Limited

Aditya Birla Sun Life Pension SBI Pension Funds

Management Limited Private Limited

Kotak Mahindra Pension UTI Retirement

Fund Limited Solutions Limited

ICICI Prudential Pension Funds

Management Company Limited

• No Tax incidence due to change of PFM or scheme preference 18

 3. d) Fund Allocation Options available under NPS

High

Alternate Extremely high risk

Extremely high Returns
Assets Hence exposure capped at 5%
Risk Appetite

Equity High risk

High Returns
Hence exposure capped at 75%

Corporate Moderate risk

Bonds Moderate Returns

Government Low risk

Securities Low Returns
Low
Low High
Returns

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3. e) Investment Choices
• Active choice – Subscriber actively selects the
percentage of contribution in different funds. The
selection has to be within the max limits.
• Active fund management by Employee across E, C,
G and A funds (exposure to Fund E and A is
restricted to 75% & 5% respectively)

• Auto choice – It is also called as Life Cycle Fund.

There are further 3 investment options are
available. (LC stands for Life Cycle)
• Aggressive (LC 75)
• Moderate (LC 50)
• Conservative (LC 25)
• Subscriber can select between these three options
and the asset allocation will be done on the basis of
their age. Hence Auto choice is a life cycle based
investment choice.
• Please refer next slide for more details on Life Cycle
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Fund
 3. e) Fund Allocation – Auto Choice…contd
In LC 75 Aggressive Life Cycle upto the age of 35, the subscriber gets the maximum equity exposure (refer 1st
table). As the subscriber’s age goes on increasing, the equity component goes on decreasing and the funds are
moved to debt funds. The logic behind this is that as the age goes on increasing, the risk appetite of the
subscriber goes on decreasing.
LC -75 Aggressive Life Cycle LC -50 Moderate Life Cycle LC – 25 Conservative Life Cycle
Age (Yrs) E C G E C G E C G
< = 35 75 10 15 50 30 20 25 45 30
36 71 11 18 48 29 23 24 43 33
37 67 12 21 46 28 26 23 41 36
38 63 13 24 44 27 29 22 39 39
39 59 14 27 42 26 32 21 37 42
40 55 15 30 40 25 35 20 35 45
41 51 16 33 38 24 38 19 33 48
42 47 17 36 36 23 41 18 31 51
43 43 18 39 34 22 44 17 29 54
44 39 19 42 32 21 47 16 27 57
45 35 20 45 30 20 50 15 25 60
46 32 20 48 28 19 53 14 23 63
47 29 20 51 26 18 56 13 21 66
48 26 20 54 24 17 59 12 19 69
49 23 20 57 22 16 62 11 17 72
50 20 20 60 20 15 65 10 15 75
51 19 18 63 18 14 68 9 13 78
52 18 16 66 16 13 71 8 11 81
53 17 14 69 14 12 74 7 9 84
54 16 12 72 12 11 77 6 7 87
> = 55 15 10 75 10 10 80 5 5 90
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Illustration – How Early Investing helps to Save More

Start investing early….Save More

Mr A started investing at the age of 30 and Mr. B started investing at the age 40. Both
invested till age 60
Particulars Mr.A Mr.B
Age at which investment started (yrs) 30 40
Monthly Investment Amount (Rs.) 3,000 4,500
Total Amount Invested (Rs.) 10,80,000 10,80,000
Corpus at the age of 60 years* (Rs.) 68,37,976 34.45,637
Both Mr. A & Mr. B invested a total of 10.8 lakh but at the age of 60 years, Mr. A's corpus is
almost double that of Mr. B
*Assumed rate of returns is 10% in both the cases.

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4. Withdrawals / Exit / Deferment Option

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4. a) NPS Exit Scenarios

On Normal Retirement at 60 years of age – Subscribers can withdraw

60% as lump sum (Tax free) & min 40% of the NPS corpus should be
used to buy pension. If the corpus is less than Rs 2 Lacs then full
withdrawal is permitted.

Early Exit or Pre-Mature Exit (Before 60 years of age) – Subscriber

can withdraw only 20% (Tax free) & min 80% of the NPS corpus
should be used to buy pension. If the corpus is less than Rs 1 Lacs
then full withdrawal is permitted. Subscriber is eligible for an early
exit only after completion of 10 years of contribution.

In-case of death of subscriber, the entire corpus is given to the

Nominee without deducting any tax. This entire amount is tax free for
the nominee

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4. b) Partial Withdrawal Benefit

• PFRDA has eased the norms of

partial withdrawal from NPS
• Subscriber can now withdraw
3 times from NPS corpus after
completing 3 years in the
system.
• The gap of 5 years between
two withdrawal has been
remove Withdrawal is permitted for the
below reasons.
• Subscriber can withdraw 25%
of contribution made by them; • Education of self & children
excluding contribution made • Marriage of children
by employer & interest
generated • Due to critical illness of self /
spouse / children
• Construction / purchase of
residential property

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4. c) Deferment Option

Upon exit at retirement age defined by the Company,

Employee gets following flexibilities:

• Defer the Annuity investment for 3 years from

retirement age OR

• Defer the Corpus withdrawal till 70 years of age OR

• Withdraw Corpus in lump sum or in installments

(max 10) OR

• Keep on investing in NPS till 70 years of age

In case the Employee opts to defer investment in Annuity or withdrawal, the amount
remains invested and keep on growing

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Scenarios– Withdrawal Options

Pre-Mature Exit
NPS joining Age : 32 years
Exit age : 45 years (which is < the retirement age defined by
the Corporate)
Corpus at the time of exit : Rs. 10 lakh
Amt allowed for Withdrawal : Rs. 2 lakh (20% of Corpus – tax free)
Amt invested in Annuity : Rs. 8 lakh (80% of Corpus – tax free)

Exit on Maturity
Corpus on Maturity : Rs. 30 lakh
Amt allowed for Withdrawal : Rs. 18 lakh (60% of Corpus is Tax free)
Amt to be invested in Annuity : Rs. 12 lakh. (40% of Corpus – tax free)

Partial Withdrawal
NPS joining Age : 32 years
Yearly Individual Contribution : Rs. 50,000
Total Contribution period : 4 years (before retirement age)
Total Contribution deposited : Rs. 2 lakh (Rs. 50,000 x 4)
Fund Value : Rs. 3 lakh
Amt allowed for Withdrawal : Rs. 50,000 (25% of Rs. 2 lakh)

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5. Annuity Service Providers (ASPs)

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 5. a) List of Annuity Service Provider

PFRDA has appointed following Insurance companies as Annuity Service Providers (ASPs)

HDFC Life Insurance Company limited

ICICI Prudential Life Insurance Company limited

Life Insurance Corporation of India

SBI Life Insurance Company Limited

Star Union Dai-ichi Life Insurance Company Limited

Kotak Life Insurance Company Limited

Indiafirst Life Insurance Company Limited

• Subscriber at the time of retirement has to select any one of these ASPs. ASPs will provide
subscribers pension on the basis of annuity type selected
5. b) Types of Annuity options

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9 Benefits to Subscribers

1. Cheapest investment product with better growth options through long term market-linked
savings.
2. Provides choice of various funds with a flexible investment pattern.
3. Individual Retirement Account for record keeping at individual level ensures portability
across geographies and employment.
4. Employee’s as well as Employer’s contribution towards NPS is eligible for tax exemption as
per the Income Tax Act, 1961 as amended from time to time.
5. Offers Tier II account which is a voluntary savings facility with anytime
liquidity/withdrawal option.
6. Efficient grievance management through CRA Website, Call Center, Email or Postal Mail.
7. Routine/quarterly disclosure of the return on funds helps subscriber to achieve better
fund management.
8. Auto Choice option for those who do not have the required knowledge to manage their
investment.
9. An option to remain invested even after your retirement.(Allow phased withdrawal)
 Benefits to Corporates

1. Employer act as a facilitator to route NPS contribution through salary

deduction .
2. Administratively, NPS is hassle free as compared to superannuation & other
pension schemes
3. NPS account is managed independently by each individual or employee for set
up as well as exit.
4. NPS is an voluntary scheme for private sector. NPS can run in parallel to EPF,
Superannuation, Gratuity & other retirement scheme
5. Transfer of Superannuation Fund to NPS Pension is permitted by PFRDA the
Regulator; subject to ITD approval in place.
6. Employers Contribution can be deducted as ‘Business Expense’ from Profit &
Loss Account under sec 36 (1) (IVA)
6. NPS – Schedule of Charges
Method of
Intermediary Charge Head Service Charge (+taxes)
Deduction
New Subscriber Registration Rs. 200.

0.25% of the contribution Min: Rs. To be Collected

POP Services Initial & Subsequent Contribution
20 & Max : Rs.25,000 upfrontly

All Non-Financial Transaction Rs. 20

NCRA(NSDL) KCRA(Karvy)

Account Opening Charge Rs. 40 Rs. 39.36

Through cancellation
CRA
Annual Maintenance Charges Rs. 95 Rs. 57.63 of units
Per Transaction (Financial/Non-
Rs. 3.75 Rs. 3.36
Financial)
Custodian Asset maintenance (Per Annum) 0.0032% of AUM
Through adjustment
Investment Management (Per
PFM 0.01% of AUM in NAV
Annum)
Through
NPS Trust Reimbursement of Expenses 0.01% of AUM
adjustment in NAV
Trustee Bank Trustee Bank charges No charges levied by Trustee Bank

*Contribution charges 0.25% or Rs 20 whichever is higher

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Thank You

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