All There Is to Know about NPS Payments via Credit Cards￼
NPS or National Pension Scheme, was launched in India in 2004 to make the population self-sufficient and plan their own retirement. The NPS scheme was only limited to government employees until 2009, when it was opened to all sections. In this article, we will be discussing NPS and how one can invest in the scheme via a credit card.
What is the ‘National Pension Scheme’?
NPS is a retirement and savings scheme that allows employed individuals to contribute a small part of their income towards retirement plans. This long-term voluntary scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and the Central Government. PFRDA is responsible for appointing fund managers, who manage the investments across a diversified portfolio.
The NPS encourages small and regular investments, which help build a retirement corpus. After the subscribers retire, they can use the accumulated funds to buy a life annuity plan that would generate regular income for life. Alternatively, retirees can withdraw part of their accumulated pension as a lump sum.
Investments made in an NPS are subject to tax benefits under Section 80C and Section 80CCD.
In this way, the scheme ensures a stable income for its contributors post-retirement and saves taxes in the present.
Can you invest in NPS via credit card?
As per the latest PFRDA regulation, contributors can no longer invest in NPS Tier 2 accounts via credit cards. Instead, they can use their credit cards to make contributions to their Tier 1 NPS accounts.
Therefore, before we get into the process of paying NPS payments via credit cards, we need to understand the differences between Tier 2 and Tier 1 NPS accounts.
NPS Tier 1 Account
A tier 1 account is a prerequisite for opening a Tier 2 NPS account. It is primarily devised to operate as a retirement savings account, and thus it is a long-term investment. NPS Tier 1 account holders can only withdraw 60% of the accumulated returns as a lump sum amount after their retirement. The balance of 40% is disbursed every month in the form of a pension.
A Tier 1 account holder has to contribute a minimum of ₹500 per contribution and at least ₹1,000 per year.
NPS Tier 2 Account
Tier 2 NPS accounts do not have a lock-in period associated with them. It is a voluntary account; hence, contributors can withdraw their funds whenever they want to. The minimum contribution required to open an NPS Tier 2 account is ₹1,000, with a minimum of ₹250 per contribution. Furthermore, unlike Tier 1 accounts, no tax deduction is applicable for NPS Tier 2 accounts.
How to use credit cards for NPS payment?
To contribute to your NPS account via credit cards, you need to follow the below-mentioned steps.
Step 1: To start investing in NPS, first you will need to register for a Tier 1 account. You can do so by visiting the official website, Central Recordkeeping Agency (CRA) portal.
Step 2: Keep your PAN, Aadhaar number, bank account details, signature image, and a cancelled cheque image at your disposal for documentation associated with registration.
Step 3: Once you have successfully created an NPS Tier 1 account, you will receive a Permanent Retirement Account Number (PRAN).
Step 4: Enter your PRAN and password to get an OTP on your registered mobile phone for verification.
Step 5: After logging onto the online NPS portal, navigate to the contribution option at the top menu and click it.
Step 6: Thereafter, you will be redirected to a new window, where you will be asked to select the NPS account to which you would like to contribute.
Step 7: If you want to pay via any other payment mode other than a credit card, you can select any of Tier 1 or Tier 2 accounts for contribution.
Step 8: If you are willing to pay via your credit card, you will have to select the NPS Tier 1 option.
Step 9: Subsequently, select your payment mode as credit card and enter your credit card details as specified on the portal.
Step 10: Enter the amount you would like to contribute and confirm the payment by entering an OTP sent to your registered mobile number.
After completion of the above-mentioned steps, your NPS account will be credited with the amount after T + 2 days.
Note that for credit card payments, a deduction of 0.90% of the transaction amount and service taxes are applicable.
What are the tax benefits on a Tier 1 NPS account?
NPS tier 1 account holders can claim the following tax-saving deductions
- Up to ₹1.5 lakh under Section 80C
- Additional deduction of ₹50,000 under Section 80CCD (1B) over the limits set by Section 80C
Therefore, investing in NPS can be an excellent means to save on taxes and enjoy lucrative returns.
What are the pros and cons of contributing to an NPS account via credit card?
- Usually, banks do not allow investors to purchase mutual funds or shares via credit cards, as it involves high credit risk. However, the government has allowed NPS tier 1 payment through credit cards. Hence, you can use credit cards only for investing in an NPS account.
- Investing in NPS via credit cards increases a contributor’s credit card usage, which makes them eligible for greater rewards and cashback.
- If you are running short of funds and do not want to miss on tax deductions at the end of the financial year, NPS payments via a credit card can help you avail tax deductions.
- The service charges levied on NPS payments via credit cards are comparatively higher than payments through net banking or debit card.
- Borrowing through a credit card can be expensive, as the interest rates on credit cards can go as high as 35% to 40%.
- Furthermore, if your credit card rewards do not add maximum benefits to your purchase, then it might not be a smart decision to pay for NPS via the same.
Transaction charges on various payment modes
Here is the list of various charges levied on the distinct payment method
|Debit Card||0.80% of the transaction amount + 18% GST|
|Credit Card||0.90% of the transaction amount + 18% GST|
|Net Banking||60 paise per transaction + 18% GST|
NPS payments via credit card can be a perfect option to maintain a consistent contribution even if an individual does not have enough cash flow. However, make sure to repay your credit card bills on time to avoid any late payment charges or high-interest rates. With every contribution made towards NPS, an individual can secure financially stable second innings of life.
Frequently Asked Questions
What is the interest rate of NPS?
As NPS is a market-linked product, it does not offer fixed interest rates. Instead, its returns depend on market conditions and the performance of its assets.
Can NRIs open NPS accounts?
Yes, NRIs can open an NPS account, which will be regulated by the Reserve Bank of India (RBI) and the Foreign Exchange Management Act (FEMA). However, if an NRI contributor changes his citizenship, their NPS account will be closed.
Can I apply for a loan against my NPS savings?
No, NPS account holders can not seek loans by keeping their NPS returns as collateral with the lender.
What documents do I need to present to avail tax benefits on NPS payment?
One can easily take a printout of the transaction slip and present the same to seek tax benefits. Remember to self-attest the hard copy and keep a copy of the document with you.