Launched in January 2004 exclusively for government employees, NPS is open for subscription to all citizens after rolling out the Voluntary National Pension System in 2009 and gained momentum thereon. NPS offers tax deduction of up to Rs 2 lakhs in a financial year to both salaried and self employed individuals. However, individuals who have exhausted the limit under section 80C (as mentioned in our previous article – Section 80 C) are eligible for an additional deduction of up to Rs 50 thousand. A subscriber can habitually contribute in a pension account throughout his career and upon retirement withdraw a part of the corpus immediately and deploy the remaining in a secured annuity plan to receive regular income throughout his life span.

Objectives of the scheme

  • Provide regular old age income to retirees.
  • Reasonable market linked returns over the long term.

Types of Accounts

  • Tier I is Pension Account and mandatory and withdrawals are restricted.
  • Tier II is Savings Account and optional, thus can be withdrawn anytime.

Tier I account balance is rigid and underlined for the retirement corpus wherein minimum contribution of Rs 1,000 is requisite. In simple terms, Tier II account is like an open-end mutual fund. There are no restrictions imposed in terms of withdrawal but investments under this account are not eligible for tax deductions (except for Central Government employees effective from 1st April 2019). However, Tier II account cannot be opened in isolation.

FeaturesTier ITier II
Eligible UsersAny Indian Citizen (Resident or NRI)Member of Tier I
Tax BenefitsUp to Rs 2 lakhsNA

Steps to open NPS Account

  1. Any citizen of India between the ages of 18 to 65 can opt to open an account.
  2. A subscriber can open NPS account online by visiting eNPS website or offline by visiting a Point of Presence (POP) in India.

PoPs are appointed by Provident Fund Regulatory and Development Authority (PFRDA) that provide services through branches known as service providers (PoP-SP) to maintain the NPS account. These include most of the banks and other financial service providers across the nation.

Online Mode

  • Using PAN Card
  1. PAN card should be linked to the bank account
  2. KYC verification is done by the bank selected. Name and address provided at the time of registering should match with that of the bank’s records.
  3. Fill up the mandatory details online (Choose your preferred pension fund manager, investment mode and assign a nominee)
  4. Upload scanned signature and photograph (in JPEG / JPG)  as part of the registration process.
  5. Payment gateway path opens up to make the necessary payments using Internet Banking.

Additions requirements for NRIs

  1. Select the bank account status i.e. Non-Repatriable account or Repatriable account.
  2. Provide the NRE/NRO bank account details and upload scanned copy of passport.
  3. Select the preferred address for communication i.e., Overseas Address or Permanent Address (communication at overseas address would entail extra charges).
  • Using Aadhar Card
  1. Aadhar Card should be linked with mobile number.
  2. KYC is done using OTP authentication. Demographic details and photograph is fetched from the Aadhar database.
  3. Fill up the mandatory details online (Choose your preferred pension fund manager, investment mode and assign a nominee)
  4. Upload scanned signature (in JPEG / JPG) as part of the registration process.
  5. Payment gateway path opens up to make the necessary payments using Debit/Credit card or Internet Banking
After Permanent Retirement Account Number (PRAN) is allotted, subscriber can use one of the following options
  • Option 1 – eSign

For Tier I PRANs generated through Aadhaar, you have option to eSign the document by following the below mentioned steps:

  1. Select ‘eSign’ option in the eSign / Print & Courier page
  2. OTP for the purpose of authentication will be sent to your mobile number registered with the Aadhaar
  3. After Authentication of Aadhaar, Registration form will be successfully eSigned (charges: Rs 5 plus service charge)
  4. Once a document is eSigned, you need not send the physical copy of form to CRA
  • Option 2 – Print & Courier
  1. Select ‘Print & Courier’ option in the eSign / Print & Courier page.
  2. Take a printout of the form, paste your photograph (please do not sign across the photograph) & affix signature
  3. Sign on the block provided for signature.
  4. The photograph should not be stapled or clipped to the form.
  5. The form should be sent within 90 days from the date of allotment of PRAN to CRA else the PRAN will be ‘frozen’ temporarily.

Offline mode

  1. Visit a Point of Presence (POP) – all Head Post Offices in India.
  2. Procure your Permanent Retirement Account Number (PRAN) application from the POP you wish to register with along with the submission of your KYC documents (Proof of identity and Proof of address)
  3. At the time of submission of the PRAN application, POP-Service Provider shall give you a receipt number. You can track the status of your PRAN application by entering the receipt number at the website portal of your preferred service provider.
  4. You are required to make your first contribution (minimum of Rs 500 for Tier 1 and Rs 1000 for Tier 2) at the time of applying for registration to any POP-SP. For this, you will have to submit NCIS (Instruction Slip) mentioning the details of the payment made towards your PRAN account.
  5. Upon verification, PRAN card will be sent to your correspondence address by Central Recordkeeping Agency (CRA).

Things you should know

  • The maturity tenure is not fixed; one can make contributions till the age of 70.
  • A subscriber becomes eligible for premature withdrawal only under special circumstances after a period of 10 years.
  • If one wants to exit from the system before retirement, a minimum of 80% of the corpus should be deployed towards an annuity plan from a life insurance company.
  • A benefactor can invest in a mix of securities ranging from equities to fixed income products & government securities. Effective April 1 2019 in both active and auto mode, investment in equity funds will be allowed to maximum of 75% of the corpus as compared to 50% earlier; however the onus to choose the preferred asset allocation lies with the subscriber, depending upon the risk profile.


In the last quarter, The Union Cabinet announced a few crucial alterations to the provisions governing NPS which will come into effect from the 1st of April, 2019. It has made NPS Tier I account at par with other with retirement schemes by granting EEE (Exempt-Exempt-Exempt) status on withdrawal.

  • Subscribers will get full tax exemption on the 60% of the corpus that an investor is allowed to withdraw on maturity contrary to the previous law wherein 20% of the withdrawn corpus was subject to tax.
  • The balance 40% is to be used for the purchase of an annuity plan; however the income received from the aforesaid plan is taxable at the applicable slab rates.
  • The central government has also proposed to increase the government’s contribution from existing 10% to 14% for government employees covered under NPS.
  • No tax deductions are applicable for NPS Tier II account at the time of investing, however the latter provisions apply similar to NPS Tier I account.


The combined deduction, thus, available under section 80 CCD is Rs 2 lakhs. However, tax benefits availed under Section 80 CCD cannot be claimed again under Section 80 C, i.e. the combined deduction under Section 80 C and 80 CCD cannot exceed Rs. 2 lakhs.

Tax benefits under NPS make it an important aspect of one’s financial freedom plan. NPS is a transparent and cost effective system wherein the pension contributions stay invested in the pension fund schemes and offers utmost flexibility to subscribers to choose their own investment options and see their money grow over the long term. Regulated by PFRDA, NPS is an essential milestone in the development of a sustainable and efficient voluntary defined contribution pension system in India.

Disclaimer: To the best of our knowledge, the information contained herein is accurate and reliable; however, we do not assume any liability whatsoever for the accuracy and completeness of the above information.