The National Pension System (NPS) is a pension scheme that allows you to invest and claim tax benefit on the investment. Investments in NPS up to Rs 1.5 lakh under Section 80CCD (1) allow one to claim deduction of an equal amount from one’s income thereby reducing tax payable.
One can invest an additional Rs 50,000 under Section 80CCD (1B) and claim a similar tax benefit for that too. Did you know that you make investments into your NPS account using your credit card?
Yes, during those times when you do not have enough money and want to save tax, you can use your credit card to invest in NPS.
There is no other instrument that allows you to invest using your credit card to save tax. Also, there is no other instrument which allows deduction of up to Rs 2 lakh.
Abhinav Angirish, Founder, Investonline.in said that investment in NPS through credit cards is allowed through the e-NPS portal. This is done to ease the investment process. It is important to have an online Tier I or Tier II account to contribute via credit card. “If you want to purchase mutual funds or shares via credit card, you are not allowed to do so. There is a fear of over-leveraging on high-interest money,” he said.
The process to invest/contribute online in NPS is simple. The user requires PRAN (Permanent Retirement Account Number) and date of birth to validate his/her credentials.
Step 1: Visit eNPS website https://enps.nsdl.com/eNPS/NationalPensionSystem.html, click on ‘National Pension System’ tab.
Step 2: Click on ‘Contribution’ tab and proceed further
Step 3: Enter PRAN, date of birth, select the toggle for NPS Subscriber Type, OTP request whether you want to receive it on your phone or email ID. Once you are done, enter the Captcha and click on ‘Verify PRAN’.
Step 4: Now, select the account type (Tier I or Tier II) and enter the amount that you want to contribute/invest. After that proceed further to make the investment/payment. You can invest either through Net-banking, debit card or credit card. The payment gateway charges vary as per mode chosen (from among these) to contribute to NPS.
Contributions through e-NPS are credited in PRANs on Transaction day + 2 days (T+2) basis (subject to receipt of clear funds from Payment Gateway Service Provider), as per the e-NPS website.
Is there any limit on amount of investment allowed via credit card?
There is no limit to invest in NPS through credit card. However, you must ensure that you have enough credit limit available on your card for the amount you are investing in NPS so as to get full tax-saving deduction benefit.
Angrish said, “There is no restriction on the contribution a person can make to NPS using the e-NPS platform. However, this facility is not available for NPS Lite account holders.”
Should you follow this investment strategy?
You need to pay 0.90 percent (excluding GST) as a payment gateway charge for making NPS contributions via credit card. This increases the cost of the NPS contribution charge. Also, if you do not pay your full credit card bill on time (before the due date), you will have to pay additional interest on your outstanding credit card balance until you make the full re-payment of the outstanding amount.
You should use credit card only if there is an urgency to make the NPS contribution and spare funds are not available immediately. However, it is preferable to use Net-banking to invest in NPS because this mode of payment has considerably lower transaction charges. You need to pay 0.60 percent (excluding GST) as a payment gateway charge for contributing to NPS via Net-banking.