Everything You Must Know About NPS Account Tier 1 and 2
Published On Jan 23, 2022 11:42 AM By InsuranceDekho
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What does NPS mean? The official name of the company is National Pension Systems. It's a contribution-based pension scheme established by the Indian government to provide an old age retirement fund to everyone who wishes to participate. The PFRDA is in charge of the industry's supervision and regulation (Pension Fund Regulatory and Development Authority). It was originally limited to government employees, but it was expanded to include non-government residents in 2009.
In addition to being a market-linked product, NPS pays out incentives based on the fund's performance. The scheme's main goal is to provide all Indian citizens with a compelling long-term savings option that offers safe and appropriate market-based returns for retirement planning. Anyone in India between the ages of 18 and 65 can create a bank account. To know more about the types of NPS Accounts, read on.
Types Of NPS Account
Following are the types of NPS accounts listed that a person can opt for -
Tier 1 Account
Tier 1 accounts are permanent retirement accounts that do not allow withdrawals. Prior to 2011, there was a lock-in period that lasted until the participant turned 60. However, in 2011, the PFRDA, the regulating authority, made a few changes. According to their new regulations, individuals in the respective fields would be entitled for early retirement after 15 years of service.
Premature withdrawals are classified as repayable advances, which is unusual. After 25 years of service, a person can additionally withdraw up to 50% of their contribution. Individuals will be able to use these withdrawals to help them in a number of situations that necessitate quick financial assistance, such as acute sickness.
Tier 2 Account
Individuals with an NPS Tier 2 Account have the ability to withdraw an infinite amount of money. It works in the same way as a savings account. The key distinction is that it is more difficult to withdraw money from this account than it is from a savings account.
It's also worth mentioning that you can only open an NPS Tier 2 account if you already have a Tier 1 account.
An NPS Tier 1 account requires a monthly payment of Rs 500 as well as an annual commitment of Rs 6000. Tier 2 accounts, on the other hand, need a minimum deposit of Rs 1000 and a transaction fee of Rs 250.
Opening An NPS Account
If you have a bank account with one of the 17 NSDL-registered institutions, you may easily open an NPS account online.
If a person's PAN is connected to their savings account, they can open an eNPS account online.
The remaining KYC and application processing will be handled by the bank.
If you have an Aadhaar card, you can sign up for an e-NPS account. Aadhaar was recognised as an e-KYC by the PFRDA (Pension Fund Regulatory Authority) on February 17, 2016.
It must, however, be connected to a person's phone number as well as their bank account number.
During the verification process, an OTP will always be sent to the person's registered phone number.
Investing In NPS
NPS investments may be eligible for a tax deduction under Internal Revenue Code Section 80C. If you invest in NPS along with other tax-saving products like PPF, ELSS, and life insurance, you may obtain a maximum deduction of Rs.150,000. Furthermore, the Pension Scheme has gained even greater popularity among individual taxpayers as a result of the extra benefit of Rs.50,000 offered by Budget 2016 to anyone investing in NPS under Section 80CCD (1b).
Those who want to invest in NPS but don't yet have their Aadhaar and PAN numbers linked to their savings bank account will have to wait until the next fiscal year. This is because, as the fiscal year draws to a close, the number of people wanting to maximise their tax advantages has skyrocketed. As a result, processing time for applications might range from 15 to 20 days. Until the end of the fiscal year, a person's PRAN will be available (Permanent Retirement Account Number).
Individuals are also barred from easily transferring cash between NPS accounts. The investment cannot be withdrawn for a minimum of one year. As a consequence, picking the right pension fund is essential.
Also read- Know Everything About SBI Pension Plans!
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.