The National Pension System (NPS) has fast emerged as a popular retirement investment option for a vast majority of Indian citizens. Besides the tax benefits under Section 80C of the Income-tax Act, 1961, there are separate incentives available under other sections, too.

The NPS is designed to generate pension income for the subscriber during his/her retirement. But what happens if the subscriber dies prematurely with or without providing nomination details, or where the nominees are unaware that the deceased had an NPS account.

Well, here’s what the NPS subscriber and his/her nominee should do in such a scenario. Where The NPS Subscriber Dies Prematurely Before 60 Years Age
The compliances are as follows:
The entire accumulated pension wealth (100 per cent with no monetary limit) will be allocated either to the nominee (s) (if available) or the legal heir/s.

There is no provision of transferring the NPS account of the deceased subscriber in the name of the nominees/ legal heirs. They can, however, use the option of annuity which the nominee or legal heir of the deceased subscriber will get at that time.

Where the nominee is not registered, or the existing registered nominee is not valid as per the Pension Fund Regulatory Development Authority (PFRDA) exit guidelines, then the accumulated pension wealth shall be paid to the legal heirs/ family members, on the basis of the legal heir certificate issued by the competent authorities of the concerned state, or the succession certificate issued by a court of competent jurisdiction.

If the subscriber exits NPS and then dies, then the lump sum payout will be limited to Rs 5 lakh. Where it is more than Rs 5 lakh, then 40 per cent of the accumulated pension wealth has to be used for buying annuity and rest can be taken as lump sum.

However, if the subscriber dies after 60 years (superannuation) then the entire lump sum is paid to the nominees, but the nominees will also have the option for annuity if they need one.

According to Sudhakar Sethuraman, partner, Deloitte India, the nominees or legal heirs who receive a lump sum from NPS do not have to pay any tax on such lump sum amount, but any pension (annuity) received from NPS is taxable in the hands of the recipient.

“Income tax form ITR-2 provides for Schedule EI where incomes exempt from tax needs to be disclosed. Where a nominee/legal heir receives a lump sum from NPS (which is exempt from tax), then the same needs to be disclosed in Schedule EI in ITR-2 form while filing their tax return in order to ensure compliance with the income tax requirements,” Sethuraman adds.

Documentation And Forms
Amit Sinha, group head, social security and welfare, Protean eGov Technologies Limited (formerly NSDL eGovernance Infrastructure Limited) said that the nominee or legal heir will have to submit a death withdrawal form along with supporting documents like death certificate of the deceased and succession certificate of the legal heir (if the heir is claiming the NPS corpus), KYC documents and bank account proof of the nominee or legal heir, and other required documents. The death withdrawal form can be downloaded from the Protean CRA website-www.npscra.nsdl.co.in.

Along with this, the nominee or legal heirs will also have to find out the associated point of presence centre (POP) with which the deceased’s permanent retirement account number (PRAN) was last mapped to.

The nominee or the legal heir will have to submit the physical form and copy of the required documents to the POP office.

Once the documents are verified, they will be uploaded on the CRA portal (Protean) for further processing.

After the request is processed by the CRA portal, the lump sum corpus will be credited to the claimant (nominee or legal heir). If the claimant has opted for an annuity plan then the details will be shared with the chosen annuity provider.

Things To Keep In Mind
The process for claiming a deceased subscriber’s NPS corpus and benefits is relatively straightforward. That said, here are certain key points to keep in mind.

Sinha said that there is no provision of transferring the NPS account of the deceased Subscriber in the name of the nominees/legal heirs at the present moment.

If someone has registered multiple nominees, or has multiple legal heirs registered in the CRA system, then the withdrawal form needs to be signed and submitted by each one of them.

In case of a minor nominee, the guardian (on behalf of the minor) will submit the withdrawal form along with the birth proof of the minor.

Finding out the associated POP where the deceased’s PRAN was last mapped is essential as that POP will process the withdrawal request.

Nominee or legal heir will also have to submit an Indemnity Bond for claiming the NPS benefits of the deceased subscriber.

Sinha further added that incase the nominee(s) have no information about subscriber’s NPS account as to who is the POP, what is PRAN, documentation required to settle the claim, process for death claim, they can always approach Protean CRA for assistance. Protean CRA shall extend all possible help to the nominee(s) to provide the necessary information for seamless death claim process.