9 Mins

National Pension System (NPS) is a Central Government initiative to encourage retirement savings. Pension Fund Regulatory and Development Authority (PFRDA) regulates this long term investment scheme. The returns from NPS are not guaranteed and are market linked. This article covers State Bank of India SBI NPS account (tier i and tier ii account), its features, benefits, eligibility criteria,  and account opening process in detail.

What is an NPS Account?

National Pension System (NPS) is a pension scheme that offers tax-saving benefits. It is regulated by the Central Government and the Pension Fund Regulatory and Development Authority (PFRDA). All Indian citizens, both residents and non-residents of age 18-65, can open an account in NPS scheme. The returns from NPS are linked to the market. Also, the performance of the scheme depends on the performance of the underlying assets.

Under the NPS scheme, two different types of accounts, namely Tier i and Tier ii NPS accounts. Tier I account is a mandatory account while Tier II is a voluntary account. Tier I NPS account is a pension account which has a minimum amount of contribution of INR 1,000. An individual has to hold their investments until the scheme matures. The maturity of the scheme is when the subscriber reaches the age of 60. Investors can make partial withdrawals of their investments in NPS Tier I accounts. Partial withdrawals of up to 25% of the corpus amount are allowed after three years from the date of account opening.

Upon maturity, an individual can withdraw up to 60% of the accumulated retirement corpus in lump sum. This amount is completely tax-free upon withdrawal. The investor should use the rest 40% to purchase an annuity scheme. The annuity scheme will pay regular pensions for a lifetime to the individual subscriber and the income from the annuity scheme is taxable in the year of receipt.

Tier II NPS account is a voluntary investment account. To open a Tier II account, it is essential to have a Tier I account. Unlike Tier, I account, Tier II account doesn’t have any restrictions with regards to withdrawals.

Moreover, a Tier II account doesn’t have any lock-in period. Subscribers are free to withdraw their investments from this account multiple times.

Investment in NPS Tier I account qualifies for tax deduction up to INR 2 lakhs under Section 80C and Section 80CCD(1b). Tier II account offer no such deductions. However, government employees who invest in Tier-II account can claim INR 1,50,000 tax deduction under Section 80C. Provided the government employees have a lock-in for three years on their investment.

Features of SBI National Pension Scheme

SBI is a Point of Presence Service Provider for NPS. It accepts the application form and all the supporting documents. Furthermore, it registers the subscriber with the Central Recordkeeping Agency (CRA) to generate the Permanent Retirement Account Number (PRAN). Following are the salient features of SBI National Pension Scheme:

The objective of an NPS scheme is to provide social security for all citizens of India.

  • One can open a State Bank of India SBI NPS account at any State Bank of India branch.
  • Subscribers can invest in NPS until they reach 60 years of age, and choose to stay invested (without any new contributions) until 70 years.

Tier i and Tier ii accounts

  • Tier 1 pension account is a mandatory account with tax benefits.
  • A Tier 2 account is an optional investment account with no tax deductions. Also, one can withdraw their corpus from the scheme at any time.
  • The minimum amount of contribution at the time of account opening is INR 500 for Tier 1 account.
  • For a Tier 2 account, the minimum amount of contribution while opening the account is INR 1,000.
  • Minimum contribution amount during every financial year is INR 1,000 for Tier 1 account.
  • For Tier 2 NPS accounts, there is no minimum contribution amount required every financial year.

Flexibility

  • Subscribers have the flexibility to choose their Pension Fund Manager (PFM). Furthermore, one can change their PFM once in a financial year.
  • Customised investment options with the flexibility to between different asset classes such as Equity, government securities and corporate bonds. Also, the asset allocation percentages can be changed twice in a financial year.

Investment Type

Investors of National Pension Scheme SBI can choose between the following three forms of investment:

  • High risk and high returns: Investing mostly in equities.
  • Medium risk and medium returns: Investing mostly in debt instruments.
  • Low risk and low returns: Investing only in debt instruments.

National Pension Scheme SBI account holders can choose from the following two forms of investment:

  • Active Choice: Investors can choose between the asset classes.
  • Auto Choice: This is a default option that invests funds as per the subscriber’ age.

The NPS account is portable across geographies and jobs.

Return and Cost

  • It is a NAV based product that offers attractive market linked returns.
  • The NPS account is a low cost product. The fund manager charges for it are 0.01%.

Withdrawals

  • Subscribers can withdraw the entire pension corpus if the amount is less than INR 2,00,000 when they turn 60 years old.
  • Partial withdrawals up to 25% are allowed for Tier 1 account. However, this is allowed only after three years and for essential purposes such as major illness, buying a home, or child’s education.

NPS account opening and maintenance

One can open NPS account online or offline:

Online:

Offline: Visit the nearest SBI branch

Furthermore, subscribers have online access to the NPS account through Web and Tele applications to CRA.

Taxation

  • A total of 60% of the accumulated retirement wealth under the scheme is tax-free on withdrawal.
  • Individuals’ contribution up to INR 1,50,000 is eligible for tax deduction under Section 80C of the Income Tax Act, 1961. An additional contribution of INR 50,000 also qualifies for tax deductions under Section 80CCD (1B) of the Income Tax Act, 1961.
  • Over and above this, Employer’s contribution up to 10% of Basic + Dearness allowance (DA) is deducted from taxable income of the employee under Section 80 CCD (2) and Employer under Section 36 (i) (iv-a) of Income Tax Act 1961 with no ceiling on the amount.

Others

  • Subscribers can do a one time transfer of the existing corpus to National Pension Scheme SBI on superannuation.
  • Investors can give standing instructions for their National Pension Scheme SBI investments.

Eligibility Criteria For Opening National Pension Scheme SBI Account

Following is the eligibility criteria to invest in NPS through SBI

  • Indian citizens and NRIs between the age 18 years and 65 years can open an SBI NPS account. However, PIO and OCI holders cannot open.
  • Being KYC compliant is mandatory for opening an SBI National Pension Scheme Tier 1 account. Following are the documents for KYC: Photo ID proof, date of birth proof, address proof and the application form. 
  • The subscriber has to make at least one contribution per year to keep the account active.
  • SBI NPS Tier 2 account can be opened only if the subscriber has an active Tier 1 account.
  • NRIs cannot open National Pension Scheme SBI Tier 2 account.
  • For composite applications:
    • The minimum contribution is INR 1,500 for Tier i and Tier ii together.
    • Submission of the cancelled cheque is required.

Documents Required To Open SBI NPS Account

Following are the documents that an Indian citizen has to submit to open National Pension Scheme SBI Account:

  • PAN Card and Aadhaar Card – linked to the applicant’s SBI account.
  • Passport size colour photo
  • Address proof
  • Scanned image of the subscriber’s signature.

For NRIs, the following are the documents:

  • Completely filled registration form.
  • Photocopy of the passport, including the following: first, last and visa page.
  • Address proof, if the current local address is different from the one mentioned in the passport.
  • Passport size colour photo

How to Open a NPS Account in SBI a Step-By-Step Guide?

All branches of SBI are registered with PFRDA to accept NPS investments. One can open an National Pension Scheme account with SBI through online and offline modes. Following are the steps for how to open NPS account in SBI:

  • One needs to have a PAN Card, Aadhar Card, and passport size photographs to open a National Pension Scheme NPS in SBI.
  • Fill the National Pension Scheme application form either online or offline with all necessary details.
  • Select either Tier I or Tier II account.
  • Choose the pension fund manager from the available list of managers. If a pension fund manager is not chosen, the NPS scheme by default chooses SBI pension fund.
  • Then, one has to decide the mode of investment. The active mode will allow the subscriber to choose the asset mix of funds. While in auto mode, the asset mix of funds depends on the age.
  • Fill in nominee details and finally make the initial minimum contribution to get a PRAN number. The next contribution amount can be paid online from SBI internet banking facility.

Benefits of An SBI NPS Account

Following are benefits of having an State Bank of India National Pension Scheme:

Option to choose and change fund manager

The NPS Scheme SBI allows its subscribers to choose the fund manager from the list of available pension fund managers. They also can change the fund manager if the subscriber is not happy with their performance.

Choice of investment mode

Investors can choose the mode of investment. NPS offers active and auto choice. Under the active choice, an individual can decide the funds asset mix. In auto mode, the invested funds asset mix depends on their age. One can also switch between investment modes.

Partial withdrawals

Though NPS Tier I account matures when the subscriber turns 60 years, the scheme allows them to partially withdraw their investments after three years from the account opening. Investors can withdraw 25% of the investment corpus three times during the tenure of their investment. And each withdrawal has to have a gap of 5 years between them.

Taxation

SBI NPS scheme offers tax benefits along with a pension. This long term investment scheme offers tax deduction up to INR 2 lakhs under Section 80C and 80CCD(1b). Moreover, upon maturity, the withdrawal of 60% of the accumulated retirement wealth in lump sum from a Tier I account is entirely tax-free in the hands of individual investors. The investor should use the rest 40% of the amount to invest in an annuity scheme. The income from the annuity scheme is taxable as the individual investor’s income tax slab rate in the year of receipt.

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