National Pension Scheme Eligibility


The National Pension System (NPS) is a voluntary, defined contribution pension scheme introduced by the Government of India. It was launched in 2004 and became operational for all citizens of India on May 1, 2009. It aims to provide a sustainable retirement planning option for individuals to secure their financial future. To be eligible to join the NPS, individuals must meet certain criteria. By understanding the eligibility criteria, individuals can take advantage of the NPS benefits and plan for a secure retirement.

Let's dive deeper into the details of NPS eligibility.

NPS Eligibility Criteria For Indian Citizens

The table below shows an overview of the eligibility criteria for National Pension Scheme:

Criteria All Citizen Model Central Government/CABs State Government/SABs Corporate Model
Age Eligibility 18 to 70 years old Up to 60 years old Up to 60 years old 18 to 70 years old
Citizenship Indian Citizen, NRI & OCI Indian Citizen (NRI & OCI - Depends on Dept. Rules) Indian Citizen (NRI & OCI - Depends on Dept. Rules) Indian Citizen, NRI & OCI
KYC Requirement Mandatory Mandatory Mandatory Mandatory

NPS Eligibility Criteria for NRIs

As a Non-Resident Indian (NRI), you are eligible to invest in the National Pension System (NPS) account. However, there are some specific criteria you need to meet in order to start investing in NPS as an NRI:

  • Age Requirement: Your age should be between 18 and 70 years.
  • KYC (Know Your Customer) Compliance: You must satisfy the KYC requirements.
  • Valid Passport: You should hold a valid passport.
  • Bank Account: You should have a valid bank account, either a Non-Resident External (NRE) account or a Non-Resident Ordinary (NRO) account.

Note: The NPS account for NRIs becomes inactive upon the cessation of your Indian citizenship.

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Individuals Not Eligible For National Pension Scheme

The National Pension Scheme (NPS) eligibility is restricted to certain categories. Here's a breakdown of who is not eligible for NPS:

  • Hindu Undivided Families (HUFs): NPS is designed for individual accounts, and HUFs are a separate legal entity for tax purposes.
  • Persons of Indian Origin (PIOs) [Foreign Citizen]: As of now, PIOs are not eligible for NPS. The scheme prioritizes Indian citizens for social security benefits.

These limitations ensure NPS caters to Indian citizens planning for their retirement.

NPS Eligibility For Tier 1 vs Tier 2 Accounts

The NPS provides two types of accounts: Tier I and Tier II, both with a comparable framework. The table below shows the comparison of eligibility requirements for Tier 1 vs Tier 2 Accounts:

Parameter NPS Tier I Account NPS Tier II Account
Eligibility Indian citizens aged 18 to 70 Requires an active NPS Tier I account
Lock-in Period Funds locked until age 60 No lock-in period
Minimum Contribution ₹500 ₹1,000 (initial)
Minimum Contribution (subsequent) ₹ 500 ₹250
Tax Benefits on Contribution Up to Rs. 1.5 lakh deduction (Sec 80CCD(1)) + Employer contribution deduction (u/s 80CCD(2)) No specific tax benefit
Taxation on Withdrawal 60% lumpsum withdrawal tax-exempt Taxed at income tax slab rate

Features of National Pension Scheme

The National Pension Scheme (NPS), launched in 2004, offers a structured approach to securing retirement income for various sectors. Here are the key features of the NPS:

  • Account Types: Tier I account is the primary NPS account, which is mandatory for government employees joining after January 1st, 2004. Tier II account is optional for additional voluntary savings.
  • Contributions: Under subscriber contributions, you can decide how much to invest regularly in your NPS account, and under employer contributions, some employers may choose to contribute to your Tier II account, which you can take advantage of.
  • Investment Options: You can choose from investment plans with varying risk levels, such as Equity (higher potential returns with higher risk), Corporate bonds (moderate risk and returns), and Government securities (lower risk and returns).
  • Portability: Your NPS account stays active even if you switch jobs, so you can ensure the continuity of your retirement savings.
  • Tax Benefits: You can claim tax deductions for your NPS contributions under Income Tax Act sections 80C and 80CCD(1B).
  • Nomination Facility: You can designate a beneficiary to receive the accumulated corpus in case of your death.
  • Exit Options: At retirement (usually 60 years), you can withdraw 60% of the corpus as a tax-free lump sum and use the remaining 40% to purchase an annuity plan that provides you with a regular monthly pension for life.

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Benefits of Joining National Pension Scheme

The National Pension Scheme (NPS) offers a comprehensive package of benefits to help you plan for a secure and comfortable retirement. Here's a breakdown of some key advantages:

NPD Tax Benefits

  • NPS contributions provide significant tax deductions under Section 80CCD(1) of the Income Tax Act. You can claim deductions of up to 10% of your salary (Basic + DA) or 20% of your gross total income (for self-employed individuals), whichever is lower, subject to a maximum limit of Rs. 1.5 lakh.
  • Additionally, there's a separate tax deduction of up to Rs. 50,000 under Section 80CCD(1B), over and above the Rs. 1.5 lakh limit under Section 80CCE.

NPS Retirement Benefits

  • NPS helps you accumulate a substantial corpus of funds for retirement through regular contributions and investment returns.
  • Upon reaching retirement age (usually 60 years), you can withdraw up to 60% of the corpus as a tax-free lump sum. The remaining 40% is used to purchase an annuity plan that provides you with a regular monthly pension income for life.

Flexibility

  • NPS offers flexibility in terms of contributions. You can choose any amount you're comfortable with, as long as it meets the minimum requirement of Rs. 500 per year. You can also increase or decrease your contributions over time.
  • You can choose your investment strategy by selecting the asset allocation mix that best suits your risk appetite. NPS offers a variety of investment options through different Pension Fund Managers (PFMs).

Portability

  • Your NPS account is linked to your Permanent Retirement Account Number (PRAN), which remains the same throughout your working life, irrespective of job changes. This allows for easy transfer of your NPS account to a new employer or location without any disruption to your savings.
  • This portability feature ensures that your retirement planning remains on track even if you switch jobs or cities.

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Frequently Asked Questions

You can join NPS if you are between 18 and 70 years old (as on the date of application).

Yes, NRIs (Non-Resident Indians) can join NPS, subject to certain regulations.

Yes, government employees can join NPS, though some states may have different rules.

No, there is no income limit for joining NPS.

Yes, self-employed individuals are eligible to participate in NPS. There are even special schemes like NPS-Traders for them.

Yes, there is a minimum contribution requirement. It's Rs. 500 per year for the regular NPS and may vary for special schemes.

A. All Indian citizens (resident or non-resident) meeting the age criteria can join NPS, including government employees, private sector employees, and self-employed individuals.

Hindu Undivided Families (HUFs) and Persons of Indian Origin (PIOs) are not eligible for NPS.

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