Requirements for Participating in the National Pension Scheme
The National Pension System (NPS), introduced in 2004, offers a retirement savings option for both government employees and individuals. Here's a breakdown of who can invest in NPS, with a focus on self-employed individuals and Non-Resident Indians (NRIs).
Eligibility for Self-Employed Individuals
Self-employed individuals can invest in NPS if they meet the following criteria:
- Indian citizenship
- Age between 18 and 70 years (no specific upper age limit for self-employed persons)
- Ability to open a Tier-I account voluntarily and contribute to it on their own
For a special scheme targeting traders and self-employed persons, additional eligibility includes:
- Age between 18 and 40 years
- Annual turnover not exceeding ₹1.5 crore
- Belonging to categories such as retail traders, shop owners, rice mill owners, commission agents, and other self-employed individuals
- Not being members of EPFO, ESIC, or already enrolled under other pension schemes like Pradhan Mantri Shram Yogi Maandhan or Pradhan Mantri Kisan Maandhan Yojana
Self-employed individuals contributing to NPS can avail substantial tax benefits. These include:
- Deduction under Section 80CCD(1) for up to 20% of gross total income, subject to an overall ceiling of ₹1.5 lakh under Section 80CCE
- An additional deduction under Section 80CCD(1B) of up to ₹50,000 above the ₹1.5 lakh limit
These deductions apply only if the taxpayer opts for the old tax regime, not the new tax regime.
Eligibility for NRIs
NRIs can open an NPS account, subject to eligibility criteria and regulatory framework by the Reserve Bank of India (RBI) and the Foreign Exchange Management Act (FEMA). To start investing, NRIs must meet additional criteria, such as having a valid passport, a valid bank account, and being between 18-70 years old.
However, it's important to note that an NPS account for an NRI becomes inactive upon the NRI's cessation of Indian citizenship.
General Eligibility Criteria
Regardless of whether you're a self-employed individual or an NRI, there are general eligibility criteria to consider when investing in NPS:
- Age: Minimum and maximum age limit for opening an NPS account is 18 to 70 years
- Residency: You must be a Resident Indian, NRI, or Overseas Citizen of India (OCI)
- KYC Documents: You must provide valid KYC documents
It's worth noting that Hindu Undivided Families (HUFs), Persons of Indian Origin (PIOs), and Overseas Citizens of India are not eligible to invest in NPS, and NRIs cannot open a joint account in NPS.
Lastly, it's important to remember that you cannot open an NPS account on behalf of a third person. If you meet all the eligibility criteria, you are eligible to open both the NPS Tier 1 and Tier 2 Accounts.
If the total corpus is up to Rs. 2.5 lakh, the entire amount can be withdrawn as a lump sum. If you meet certain conditions, such as having a disability with a percentage of more than 75%, you are eligible for early exit from the NPS before the age of 60. However, only 20% of the corpus can be withdrawn, with the rest used for an annuity plan.
In summary, the National Pension System offers a valuable retirement savings option for self-employed individuals and NRIs, provided they meet the eligibility criteria. It's essential to understand these criteria and the associated tax benefits before investing.
Self-employed individuals can benefit from investing in NPS by availing substantial tax benefits such as deduction under Section 80CCD(1) for up to 20% of gross total income, with a ceiling of ₹1.5 lakh under Section 80CCE, and an additional deduction under Section 80CCD(1B) of up to ₹50,000 above the limit.
NRIs can open an NPS account, but it's important to note that the account becomes inactive upon the NRI's cessation of Indian citizenship.
