How to Open an NPS Account Online for Optimal Tax Benefits?

How to Open an NPS Account Online for Optimal Tax Benefits?

Types of NPS Accounts

Before understanding how to open an NPS account, you must first understand that there are two types of NPS accounts: Tier I and Tier II. Tier I is a default account you get when you open the account. Later, you can upgrade to the voluntary Tier II account for special benefits. Your NPS account type also determines the extent of tax benefits you can qualify for.

An Overview of the NPS Tax Benefits

An NPS Tier I account makes you eligible for various tax benefits under various sections of the Income Tax Act of 1961. Here’s a glance:

● 80CCD (1): Tax deduction of up to 10% of your salary (basic + DA) subject to a maximum of Rs. 1.5 Lakh per year towards investment in a Tier I NPS account.

● 80CCD (1B): Additional tax deduction of Rs. 50,000 over and above the deduction limit of Rs. 1.5 Lakh under the previous section, making a total deduction of up to Rs. 2 Lakh per annum. 

● 80CCD (2): Claim a percentage of your salary (basic + DA) for your employer’s contributions to your Tier I account. The limits are 14% of the salary for government employees and 10% for private sector employees.

NPS Tier II is a voluntary account that allows you to contribute and withdraw funds at any time regularly. However, it does not provide tax benefits under any of the above sections.

Additional NPS Tax Benefits

Besides these deductions, NPS also provides the following tax benefits:

• For Partial Withdrawals: After three years of investment in a Tier I account, partial withdrawals of up to 25% of the accumulated corpus are allowed for certain purposes like medical bills, a child's marriage or education, house purchase, etc. These partial withdrawals are totally tax-exempted.
• For Lump Sum Withdrawals: The 60% lump sum withdrawal you make after retirement is tax-free under Section 10 (12A).
• For Annuity Investment: The 40% corpus you spend on an annuity is tax-exempted under Section 80CCD (5). However, the income earned from annuity purchase is taxable.

Also Read: How to Select the Right Accounting Software for Your Business Needs

How to Open an NPS Account at Kotak Mahindra Bank?

Kotak Mahindra Bank makes NPS account opening simpler than ever. Here, we will explain how to open an NPS account at Kotak:

●        Visit the Kotak Mahindra Bank website and reach the NPS section.

●        Choose ‘Aadhaar Paperless Offline eKYC’ from the registration mode.

●        Enter that your email and mobile number are linked to your Aadhaar.

●        Upload the necessary documents, including a photograph, cancelled cheque, and proof of signature.

●        Pay the initial contribution amount required for account opening.

●        Complete the registration process by entering the OTP you receive on your mobile number.

●        You may also print the form, attach a photograph, and send it to the Protean eGov with attestation.

How to Invest in NPS Online?

Once your NPS account is open, you can access it using the following instructions:

●        Visit the Kotak Mahindra Bank website and select NPS from the ‘Invest’ section.

●        Click ‘Invest Now’ and select your payment frequency, amount, PFM, and investment preference.

●        Enter your personal details and provide your nominee-related information.

●        Upload the necessary documents.

●        Verify the details and agree to the terms and conditions.

●        Click on ‘Invest’ and authenticate with an OTP.

●        You will receive a Permanent Retirement Account Number (PRAN), which you can use for further account access and investment.

Benefits of Opening an NPS Account

The NPS scheme provides multiple benefits, including the following:

Low Risk: Since NPS is a government-owned scheme, it generates ample returns with a limited risk level.

Reliable Income Source: The NPS offers pensions through annuity purchases to help you lead a comfortable retirement life.

Flexibility: You can design the scheme according to convenience, affordability, and risk appetite.

Affordability: NPS is a low-cost investment option with higher returns and multifaceted benefits. The contribution requirements are minimal, with ample flexibility. Regular investment can generate considerable returns by retirement.

Guaranteed Returns: Although some funds go to equities without assured returns, the overall returns from the scheme are guaranteed. The total NPS returns are higher than most other retirement planning schemes, such as PPF and FD.

Your retirement life depends on your planning and preparation for it. NPS is a strong investment plan that ensures financial security during the golden years. With tax benefits, assured returns, and regular pensions, NPS has become one of India's best retirement planning schemes. Follow the steps mentioned here to open an NPS account and invest to secure your future.