Answer By law4u team
The National Pension Scheme (NPS) is a retirement savings scheme that provides individuals with the opportunity to create a retirement corpus through regular contributions during their working years. However, in the unfortunate event of the account holder's death, there are clear provisions in place for how the NPS corpus is handled. The NPS account is designed with flexibility for the nominee or legal heir to claim the accumulated amount.
What Happens to NPS After Death?
Nominee or Legal Heir Claims the NPS Corpus:
In the event of the account holder's death, the nominee (or legal heir) becomes eligible to claim the accumulated NPS corpus.
It is important that the account holder has nominated a beneficiary in their NPS account during their lifetime. If no nominee is named, the legal heir or family members can claim the corpus through proper documentation and legal processes.
1. Claim Process for the Nominee/Legal Heir:
The nominee or legal heir can claim the accumulated amount by submitting the required death certificate of the NPS account holder along with identity proof and relationship proof (if necessary).
The claim can be processed either online or offline:
- Online Process: The nominee can visit the NPS Trust website or the eNPS portal and follow the steps for claim settlement.
- Offline Process: Alternatively, the nominee can submit the claim form along with the required documents at the nearest NPS branch or POP (Points of Presence) provider.
2. NPS Corpus Payout After Death:
After the death of the NPS subscriber, the nominee/legal heir has two options for receiving the corpus:
Option 1: Lump-Sum Withdrawal
The nominee can withdraw the entire accumulated corpus as a lump sum. This is applicable if the NPS subscriber passes away before the age of 60.
If the subscriber dies before 60, the entire corpus is paid out to the nominee/legal heir as a lump sum. There are no annuity purchase requirements in this case.
The tax implications depend on the source of the corpus. If the contribution is more than 60%, the remaining amount may be taxed. However, if the nominee opts for a lump sum withdrawal of the entire corpus, there may be tax deductions at the time of withdrawal.
Option 2: Annuity Option
In case the subscriber passes away after turning 60, the nominee/legal heir is required to use 60% of the corpus to buy an annuity, which provides a monthly pension.
The remaining 40% of the corpus can be withdrawn as a lump sum.
The annuity provider will pay monthly pension payments based on the annuity plan chosen at the time of the claim. The type of annuity and the amount will depend on the pension scheme selected by the deceased subscriber.
3. Tax Implications for Nominee or Legal Heir:
Lump-Sum Withdrawal:
If the entire amount is withdrawn as a lump sum, it may be subject to taxation. The tax will depend on the amount of contribution and the holding period.
Annuity Option:
If the nominee opts for the annuity, the pension payments will be taxable as income in the hands of the nominee.
The NPS corpus, when inherited, may have certain tax exemptions based on the time of withdrawal, but typically, tax will apply if the corpus is withdrawn as a lump sum or converted into an annuity.
4. NPS Death Benefits for Family:
If the NPS subscriber passes away, the family benefits from the nominee's rights to claim the corpus.
In case of death after 60 years, the family receives monthly pension as per the annuity option, with the possibility of survivor benefits.
Survivor Benefits:
The family can receive additional annuity benefits based on the family pension plan chosen by the NPS account holder before death.
5. Important Points to Remember:
Nominee Appointment:
It is essential to have a valid nominee for your NPS account. This ensures that your family or legal heirs have access to your NPS corpus after your death.
Claim Settlement Timeline:
The nominee can expect the claim to be settled within a few weeks, provided the necessary documents and formalities are in place.
Survivor Benefit Option:
If the nominee is a spouse, children, or a dependent, the NPS account holder may opt for a survivor benefit to continue pension payments for the family after death.
Example:
Scenario 1: NPS Subscriber Dies Before 60
A person has an NPS account and passes away at the age of 55. The nominee can claim the full accumulated corpus as a lump sum. There are no annuity requirements, and the amount will be paid out as a single payment to the nominee.
Scenario 2: NPS Subscriber Dies After 60
A person has an NPS account and passes away at the age of 65. The nominee can withdraw 60% of the corpus to buy an annuity that provides a monthly pension. The remaining 40% of the corpus can be withdrawn as a lump sum by the nominee. The monthly pension will be taxable as income.
Conclusion:
The National Pension Scheme (NPS) offers flexibility and security for the nominee or legal heir of a deceased account holder. Whether the NPS subscriber dies before or after the age of 60, the nominee has the right to claim the accumulated corpus either as a lump sum or as an annuity to receive monthly pension payments. While the process is straightforward, it’s crucial for NPS subscribers to ensure they have updated their nominee details and understand the implications of tax on the withdrawn amount. By doing so, they ensure that their family is financially secure after their passing.
