Types Of Accounts Under NPS
Published On Jan 06, 2022, Updated On Jan 07, 2022
Table of Contents
What is NPS? National Pension Systems is the full name of the organisation. It's a contribution-based pension programme created by the Indian government with the purpose of providing an old age retirement fund to everyone who wants to join. The PFRDA is in charge of overseeing and regulating the industry (Pension Fund Regulatory and Development Authority). It was initially restricted to government personnel, but in 2009 it was broadened to include non-government residents.
NPS delivers rewards depending on the fund's performance in addition to being a market-linked product. The scheme's principal purpose is to give all Indian residents an enticing long-term savings option that provides secure and suitable market-based returns for planning for retirement. An account can be opened by any Indian citizen between the ages of 18 and 65. To understand and know more info on NPS Accounts, read on.
Types Of NPS Account
Following are the types of NPS accounts that an individual can opt for -
Tier 1 Account
A perpetual retirement account with no withdrawals is known as a Tier 1 account. It had a lock-in period that lasted until the participant reached the age of 60 prior to 2011. The PFRDA, the regulatory body, did, however, make a few modifications in 2011. The relevant personnel would be eligible for early retirement from the military after 15 years of service, according to their new regulations.
Premature withdrawals are treated as repayable advances, which is a rare occurrence. A person can also withdraw up to 50% of their contribution after 25 years of service. Individuals will be able to use these withdrawals to aid them in a variety of situations that require immediate financial support, such as acute illness.
Tier 2 Account
Individuals with an NPS Tier 2 Account can withdraw an unlimited amount of money from their accounts. It functions similarly to a savings account. The main difference is that withdrawing funds from this account is more difficult than withdrawing funds from a savings account.
It's also worth noting that an NPS Tier 2 account may only be created if a Tier 1 account is already open.
A monthly payment of Rs 500 and an annual contribution of Rs 6000 are required for an NPS Tier 1 account. A Tier 2 account, on the other hand, demands a Rs 1000 minimum payment and a Rs 250 transaction charge.
Opening An NPS Account
You may simply start an NPS account online if you have a bank account with one of the 17 NSDL (National Securities Depository Ltd)-registered institutions.
If a person's PAN is linked to their savings account, they can apply for an online account on the eNPS official website.
The bank will take care of the rest of the KYC and application processing.
An individual can open an e-NPS account if they have an Aadhaar card. The PFRDA (Pension Fund Regulatory Authority) recognised Aadhaar as an e-KYC on February 17, 2016.
However, it must be linked to a person's phone number and savings account number.
An individual will always get an OTP on their registered phone number during the verification procedure.
Investing In NPS
NPS investments may qualify for a tax break under Section 80C of the Internal Revenue Code. An individual can claim a maximum deduction of Rs.150,000 if they invest in NPS together with a number of other tax-saving products such as PPF, ELSS, and life insurance. Furthermore, the Pension Scheme has acquired even more support among individual taxpayers because Budget 2016 granted an additional benefit of Rs.50,000 to anyone investing in NPS under Section 80CCD(1b).
Those who wish to invest in NPS but do not yet have their Aadhaar number and PAN number connected to their savings bank account will have to wait until the next financial year. This is due to the fact that, as the fiscal year draws to a close, the number of people attempting to maximise their tax benefits has risen dramatically. As a result, application processing might take anywhere between 15 and 20 days. A person's PRAN will not be available until the conclusion of the fiscal year (Permanent Retirement Account Number).
Individuals are also not permitted to freely transfer monies between NPS funds. For a minimum of one year, the investment cannot be withdrawn. As a result, selecting the appropriate pension fund is critical.
Also read - Beginners Guide To Purchase A Pension Plan
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.