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Everything That You Must Know About NPS Account Tier 1 and 2

Published On Mar 29, 2022 10:00 AM By InsuranceDekho

National Pension Systems is the company's official name. It is a contribution-based pension plan set up by the Indian government to give an old age retirement fund to anyone who wants to join. The PFRDA is in charge of overseeing and regulating the sector (Pension Fund Regulatory and Development Authority). It was initially limited to government employees, but it was expanded to include non-government residents in 2009. NPS provides incentives based on the fund's performance in addition to being a market-linked product.

Types Of NPS Accounts

1. Tier 1 Account 

Permanent retirement accounts with no withdrawals are known as Tier 1 accounts. Prior to 2011, participants were locked up until they reached the age of 60. However, the PFRDA, the regulating body, made a few amendments in 2011. Individuals in the relevant areas would be eligible for early retirement after 15 years of service, according to their new laws.
Premature withdrawals fall under the category of repayable advances, which is exceptional. A person can also withdraw up to 50 percent of their contribution after 25 years of service. Individuals will be able to use these withdrawals in a variety of situations that require immediate financial support, such as acute illness.

2. Tier 2 Account

Individuals who have an NPS Tier 2 Account have access to an unlimited quantity of money. It functions similarly to a savings account. The main difference is that withdrawing money from this account is more difficult than withdrawing money from a savings account. It is also worth noting that an NPS Tier 2 account can only be opened if you already have a Tier 1 account. A monthly contribution of Rs 500 and a yearly commitment of Rs 6000 are required for an NPS Tier 1 account. Tier 2 accounts, on the other hand, need a Rs 1000 minimum deposit and a Rs 250 transaction charge.

Opening An NPS Account

You may quickly start an NPS account online if you have a bank account with one of the 17 NSDL-registered institutions. A person can open an eNPS account online if their PAN is linked to their savings account. The bank will handle the rest of the KYC and application processing. You can open an e-NPS account if you have an Aadhaar card. On February 17, 2016, the PFRDA (Pension Fund Regulatory Authority) recognised Aadhaar as an e-KYC.
However, it must be linked to both a person's phone number and their bank account number.
An OTP will always be delivered to the person's registered phone number during the verification procedure.

Investing In NPS 

NPS investments may qualify for a tax deduction under Section 80C of the Internal Revenue Code. You can get a maximum deduction of Rs.150,000 if you invest in NPS along with other tax-saving products like PPF, ELSS, and life insurance. Furthermore, as a result of the additional benefit of Rs.50,000 granted by Budget 2016 to anyone investing in NPS under Section 80CCD, the Pension Scheme has grown in popularity among individual taxpayers (1b). Those who wish to invest in NPS but have not yet linked their Aadhaar and PAN numbers to their savings bank account will have to wait until the following fiscal year. This is due to the fact that, as the fiscal year draws to a close, the number of persons wishing to maximize their tax benefits has risen dramatically. As a result, application processing time may range from 15 to 20 days. A person's PRAN will be available until the conclusion of the fiscal year (Permanent Retirement Account Number).

Take Away

Individuals are also unable to move funds quickly between NPS accounts. A minimum of one year must pass before the investment can be withdrawn. As a result, selecting the best pension fund is critical.

Also read - How Much Income Would You Require After Retirement?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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