Subscribers of National Pension System’s (NPS) Tier I account should also opt for the add-on Tier II account for flexibility in investments and withdrawals. To open a Tier II account, it is mandatory to open a Tier I pension account. Subscribers of the voluntary Tier II account have the flexibility to invest and withdraw from various schemes without any exit load. However, there are no tax benefits on a Tier II account.
How to open the accountA subscriber can open the Tier II account through online or offline mode. For online registration, a subscriber will have to go to eNPS website and click on on ‘Tier-II Activation’. After entering his Permanent Retirement Account Number (PRAN), date of birth, Permanent Account Number (PAN), he can verify and activate the account. Offline, a subscriber can visit a Points of Presence (PoP) registered with PFRDA. A subscriber of a Tier II account gets multiple investment options — equity up to 50%, government securities and corporate bonds up to 100%.
Withdrawal benefitsA subscriber can withdraw money from an NPS Tier-II account at any point of time, without any restrictions. Also, one can transfer the funds from Tier-II account to Tier-I account. Moreover, in case of closure of NPS Tier-I, the balance outstanding in NPS Tier-II account will have to be withdrawn simultaneously. As the investments in a Tier II account is also market-linked, the redemption amount will depend upon the applicable NAV at the time of redemption and funds will be transferred to subscriber’s account in three working days.
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TaxationWhile a subscriber of a Tier I account can claim tax benefit of Rs 1.5 lakh under Section 80 and an additional deduction of Rs 50,000 under Subsection 80CCD (1B), there is no tax benefit for investing in a Tier II account. In a Tier I account, on maturity, 60% of the total corpus received is tax-free and the 40% amount utilised for purchase of annuity plan is also tax-free. The amount received from partial withdrawal is also tax exempt under Section 10 (12B). Even GST is not applicable on annuity plan purchased through NPS on exit. However, in case of a Tier-II account, the subscriber will have to pay tax as per the marginal tax rate applicable to him on the returns earned.
