The Union Cabinet had last year approved an increase in the income tax exemption limit on lump sum withdrawal from the National Pension System (NPS) on maturity, effectively making the withdrawal from the pension scheme tax-free. The decision is soon expected to be enforced as Budget 2019 has notified it.
On maturity, an NPS subscriber can withdraw up to 60% of her accumulated corpus as lump sum; the remaining 40% of the corpus is paid to the subscriber as an annuity, regular pension payment. Until now, only 40% of the lump sum was tax-free. This meant that of the 60% lump sum, 20% was taxable and the remaining 40% was tax-free.
The portion of the maturity corpus that compulsorily needs to be annuitized is tax-free, but the annuity income that you get every year is taxable as per your income tax slab rate.
The tax nudge to NPS has taken it a step closer to becoming a popular vehicle for retirement. If you are considering opening an NPS account, remember that you will need an active mobile number, email ID and bank account with a Netbanking facility to open the account. Here is a step-by-step guide on how to do it.
1) You can open an eNPS account by visiting Enps.nsdl.com/eNPS or Nps.karvy.com.
2) Select, “new registration" and proceed with providing your details once your mobile number is verified using an OTP.
3) Once you submit your personal and Netbanking details, you need to decide the portfolio allocation among four available funds: equity fund, alternative investment fund, government securities fund and corporate bond fund.
4) Once you enter the allocation details, you need to update the nominee details in the next step.
5) You need to upload a cancelled cheque of the account you mentioned in the form, your photograph and your specimen signature.
6) You have to make your first contribution towards NPS subject to a minimum investment of ₹500 ( ₹1,000 is for tier 2 account).
7) On successful completion of payment, your Permanent Retirement Account Number (PRAN) will be generated along with the payment receipt.
8) After making the contributions, go to the “e-sign/print registration form" page. You can register using your PAN along with Netbanking for KYC (know your customer) registration or send across a printed copy to the Central Recordkeeping Agency within 30 days. In case you are using PAN-Netbanking KYC, make sure that the KYC details you submit match the ones in the bank’s record. At present, this facility is available to account holders of 22 banks (you can see the list of these banks at Enps.karvy.com). NPS also had an Aadhaar-based KYC, which is currently disabled, according to the NSDL eNPS website.