With the emergence of the National Pension System (NPS), saving taxes is now easier than ever. With professional fund managers appointed by the Pension Fund Regulatory and Developmental Authority (PFRDA) managing NPS funds, people can rest assured their money is invested across diverse portfolios with next to no risk. But did you know that you can be a part of the NPS, get a rough calculation of your returns using an NPS calculator and avail of tax benefits as well? What’s better is this is possible from the comfort of wherever as you can make your NPS contribution online as well.
Why choose NPS for Saving on Taxes?
Before we talk about how to enrol and contribute to NPS, let us understand why you should choose NPS if you’re looking to save on tax payments:
NPS contribution: Under Section 80CCD(1B) of the Income Tax Act, you can claim an additional tax deduction of up to Rs. 50,000 for contributions made to NPS. This is over and above the deductions available under Section 80C. Therefore, it makes it a powerful tool for tax planning. Making an NPS contribution online is easier than you think.
NPS Minimum Contribution: You need to maintain a minimum annual contribution in your NPS account so as to keep it active. The amount is usually just Rs. 1000. This flexibility makes NPS accessible to a wide range of individuals.
Steps to Enrol in NPS
Here are the steps to enrol in NPS:
1. Choose your NPS account type:
Whether you want to open a Tier-I or Tier-II NPS account is your choice. Tier-I is mandatory and meant for long-term retirement savings. Tier-II is voluntary and offers more liquidity. So, decide based on your desire for flexibility.
2. Select an NPS Account Provider (POP):
You have to identify a Point of Presence (POP) that provides NPS services. POPs are financial institutions that offer NPS services. These possess authorization from the Pension Fund Regulatory and Development Authority (PFRDA). You can choose from a variety of entities, like banks, post offices, or other authorised financial entities.
3. Fill out the NPS Registration Form:
After you have chosen your POP, you should visit them and request an NPS registration form. You have to complete the form with your personal and financial information. Ensure the information is accurate, because it is critical for your NPS account. Along with the Form Cheque of Rs. 1000 to be presented. (Rs. 400 as one-time account opening fees and Rs.500 as initial contribution amount plus applicable taxes.)
4. KYC Verification:
You must submit the 'Know Your Customer' (KYC) documents with your application. These documents typically include proof of identity, an address, and a PAN card. You should complete the KYC process as per the guidelines of chosen POP.
5. Choose an NPS Fund Manager:
NPS takes care of you and your choices. You will have the option to choose from multiple fund managers who will manage your NPS investments. Fund managers have different asset allocation strategies. So, you should select the one that aligns with your financial goals.
6. Allocate your contribution:
You can decide how you wish to allocate your NPS contributions among asset classes. The asset classes are equity (E), corporate bonds (C), and government securities (G). The option of choosing your own asset allocation is available, or you can opt for the Auto choice – lifecycle fund where basis the age of the Subscriber the system will automatically allocate the portfolio.
7. PRAN Generation:
Great! Done with all the steps? Now you have almost reached the last step! Once your application is processed and verified, you will receive a permanent retirement account number (PRAN). This PRAN is your unique NPS account number.
Steps to Contribute to NPS Online
You have now enrolled in NPS, so it's time to start contributing online. Here is how:
Access your NPS account online:
You have to visit the official NPS website. Or you can visit the portal of your choice that provides online NPS services.
Login to your NPS account by just using your PRAN and password.
Navigate to Contributions.
Within your NPS account, if you observe, you will find an option to make contributions. Click on it to proceed.
Choose Contribution Type:
You can make contributions either through a one-time lump-sum payment or set up systematic contributions. Select the option that suits your financial plan.
Specify the contribution amount:
Now, enter the amount you wish to contribute. Don't forget that there is a NPS minimum contribution requirement to keep your account active, which is Rs 1000 per financial year.
6. Select Payment Method:
There is no need to worry about ease of payment. NPS allows various payment methods, including net banking, debit cards, and credit cards. You can choose the method that is convenient for you.
7. Confirm and review:
Reviewing the details to ensure accuracy before finalizing your contribution is essential. Review thoroughly, then confirm.
8. Make Payment:
Proceed to make the payment, and you will receive a confirmation once the transaction is completed.
You can also make use of an NPS calculator to get a quick estimate of the potential returns on your National Pension System investment. These calculators take into account various factors like your contributions, NPS tier, expected returns, and the tenure of your investment to provide a rough projection of your retirement corpus. The NPS calculatoris a handy tool to help you plan your financial future effectively.