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What is the National Pension System (NPS Scheme)?
National Pension Systems (NPS) is an affordable equity investment linked to the market that is intended for retirement planning. It offers both alluring tax savings and profits based on market performance. The Government of India launched the National Pension System (NPS) as an investment and pension plan to offer all Indian citizens pensions and old age security.
On May 1, 2009, Indian citizens aged 18-70, including NRIs & OCI (except PIO cardholders & HUF), were made eligible for the NPS scheme. The Pension Fund Regulatory and Development Authority (PFRDA) administrators govern the scheme. Subscribing for NPS with Kotak Mahindra Bank is a hassle-free and lucrative option.
Features & Benefits of National Pension System (NPS Scheme)
Being a PFRDA-approved pension fund manager under NPS at Kotak Mahindra Bank, we provide users with various advantages that set it apart from other investing options. Some of its features have been discussed below:
- Minimal individual investment costs contribute to a substantial national pension savings scheme over time.
- Versatile for various professions and locations, accommodating job changes for subscribers.
- The system is closely monitored by administrators from the Pension Fund Regulatory and Development Authority (PFRDA).
- Subscribers must possess a Permanent Retirement Account Number (PRAN) to access all NPS pension services and receive a monthly annuity post-retirement.
NPS offers four fund options: Equity funds, Corporate Debt funds, Government Securities funds, and Alternate Investment Funds for subscribers to tailor their investments.
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Other Features: Tax Benefits of the National Pension System (NPS Scheme)
- Tax Benefits for Salaried Individuals
Section 80CCD (1) of the Information Tax Act allows for the deduction of up to 10% of the wage (basic and dearness reimbursements) invested in the NP form taxable income for each fiscal year. Under Section 80C, however, the total is subject to a Rs cap. 1.5 Lakh. Under section 80CCD (1B), a further reduction of Rs. 50,000 is also permissible for NPS, making the total deductible 2 Lakhs.
- Tax Advantages for Independent Contractors (Self-Employed)
Self-employed workers can deduct up to 20% of their gross annual income from their taxable income. However, Rs. 1.5 Lakh cap is deductible. Under section 80 CCD(1B) of the Income Tax Act, self-employed workers are also eligible to claim an additional deduction of Rs. 50,000 as part of the commencement of the 2015-2016 budget.
Employees can contribute directly or through their company under an NPS account. Section 80CCD (2) allows a deduction (Basic + dearness reimbursements) of up to 10% of the wages if the investment is made through an employer. As long as the employee’s deduction stays within 10% of their monthly wages, the total amount of any deductible fee is not capped.
Types of NPS Accounts
Tier 1 and Tier 2 accounts comprise the NPS India program. Tier 1 accounts pose restrictions on withdrawals. Only current Tier 1 account holders are eligible for a voluntary withdrawal NPS Tier 2 investment account. All NPS payments online to Tier 1 are eligible for tax benefits.
- Tier 1 Accounts - Also known as Retirement accounts include personal and employer involvement. Individual contributions may be carried over for up to 75 years. This Retirement account has limited pre-retirement withdrawals. The minimum contribution to this account starts from Rs. 500; annually, it amounts to a minimum of Rs. 1,000. People with Tier 1 accounts need to make at least one instalment annually and have unlimited contribution frequencies.
Tier 2 Accounts - These accounts are generally operated for investment purposes with only individual contributions. There are no additional joining or Central Recordkeeping Agency fees for new subscribers. The minimum amount to be contributed at the time of account opening is Rs. 1,000, with Rs. 250 as the minimum amount per contribution.
How to open an NPS account
Opening an NPS account through Kotak Mahindra Bank’s "myNPS" portal is a hassle-free, paperless procedure. Choose the registration method that suits you best, and here's a brief outline of the steps and documents required for each:
- Aadhaar eKYC: Link your Aadhaar, upload your mobile number, email, photo, signature, a Cancelled Cheque, and submit a ₹500 payment.
- PAN-based Registration: Connect your PAN, upload your mobile number, email, photo, signature, a Cancelled Cheque, and make a ₹500 payment.
- Driving Licence Registration: Authenticate using Digilocker, upload your Driving License, PAN, mobile number, email, photo, signature, and a Cancelled Cheque, and submit a ₹500 payment.
- Aadhaar via Digilocker: Authenticate via Digilocker, upload your Aadhaar, PAN, mobile number, email, photo, signature, a Cancelled Cheque, and make a ₹500 payment.
- KYC Verification by POP: Verify through an empanelled POP, link your existing active account, upload your mobile number, email, and photo, and make a ₹500 payment.
All methods guarantee a swift, paperless online NPS scheme account opening process. Pick your preferred one and begin your journey with our "myNPS" portal.
How to Invest in the National Pension System (NPS Scheme)
Investing in the National Pension System (NPS) is a smart financial move. To begin, follow these steps:
- Register: If you're new to NPS, register online, selecting a Tier 1 or Tier 2 account. Choose an investing plan based on your level of risk tolerance. It is also possible for you to design a personalised plan.
- KYC: Complete KYC with Aadhaar, PAN, or Driving License, depending on your preference.
- Kotak Mahindra Bank’s Mobile Banking App: For a seamless experience, use the Kotak Mobile Banking App to invest effortlessly.
- Contribution: Make an initial deposit, starting from ₹500, and set up regular contributions.
Kickstart your secure retirement fund with NPS. Visit Kotak myNPS today and embark on your financial adventure with confidence. Your future self will thank you.
National Pension System (NPS Scheme) investment option
By voluntarily allocating investments among the four asset classes listed below, you can create your own portfolio.
- Equity - This is a “high risk - high return” option because the money is invested in equity. This class may make up to 75% of the subscriber’s investment.
- Corporate Bonds - investments are made in debt products with fixed income.
- Government Securities - This type of investment involves the use of funds allocated to Government assets.
- Alternate Assets - Money is allocated to infrastructure and real estate funds. Because this is a high-risk investment, there is a 5% maximum limit.
Most Consistent National Pension System (NPS Scheme)
Of all the National Pension System (NPS) Schemes, “Kotak Mahindra Bank National Pension System” has been the most reliable. The NPS scheme in banks and its dependability and long-term performance have made it a popular option for many investors, as it has continuously produced steady returns.
Category Average Returns
The weighted benefits of NPS units vary; Investment-focused funds generally offer higher returns but higher risk. Annual earnings provide a consistent picture, while quarterly earnings reflect changes in short-term performance. Investors can recognise these differences and choose NPS units that best suit their long-term investment objectives and risk tolerance.
Frequently Asked Questions