Any resident Indian or NRI can open an NPS account at point of presence (POP). This can be a post office, a bank or a distributor. You need a Permanent Retirement Account Number (PRAN) to open an NPS account. The scheme offers two kind of accounts namely, Tier I is mandatory whereas Tier II account is optional. A Tier II account can only be opened if one has a Tier I account. There are restrictions on withdrawal from Tier I account whereas a subscriber is free to withdraw money from the Tier II account.
A fund management fee of 0.0102% is levied for government employees and 0.25% of the invested amount for private sector contributors. There are three types of funds in NPS. The E class funds are equity funds and invest in Nifty stocks. The C class funds are debt funds that invest in corporate bonds. The G class funds invest in government securities. Investors can choose their asset mix but allocation to equity funds cannot exceed 50%. NPS has strict rules on withdrawals and the corpus cannot be taken out before age 60. Only 60% of corpus can be withdrawn at maturity. There is a compulsory purchase of annuity option in NPS. At least 40% of maturity corpus must be put into an annuity to give monthly income.ย Annuity rates are very low and income is fully taxable on maturity. The NPS is currently under the EET (exempt, exempt, tax) which means it is tax free on contribution and accumulation but taxable on maturity. Hence, an NPS subscriber is taxed on withdrawal. NPS offers tax deductions under various sections: These are 80CCD โ Rs. 1,50,000 ; 80CCD (1b) โ Rs. 50,000 ; 80CCD (2) โ 10% of Basic + DA.