When you open an NPS account, you are given a PRAN (Permanent Retirement Account Number). There are two types of NPS accounts: Tier I and Tier II.
New Delhi: The National Pension System (NPS) is a retirement savings scheme that offers exposure to four asset categories: equity, government securities, corporate bonds, and alternative investment funds (AIFs). NPS offers a variety of investment options for retirement savings, including equity, corporate bonds, and government securities.
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Additionally, the NPS provides tax-free investment returns and tax advantages for contributions made in accordance with section 80C of the Income Tax Act. A PRAN (Permanent Retirement Account Number) is provided to you when you open an NPS account. Tier I and Tier II NPS accounts are the two different categories.
The National Pension System (NPS) is a retirement savings program that enables people to put money aside for their golden years. The Pension Fund Regulatory and Development Authority (PFRDA) oversees its administration.
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NPS Tier I: Details
NPS Tier 1 accounts are the main accounts for employees in the government and private sectors. Individuals can start investing in these accounts with as little as Rs 1,000 per year.
Tier I is the main account, and it is mandatory for all NPS subscribers to open one. The money in this account is invested in a mix of equity and debt funds, and it can only be withdrawn after the subscriber reaches the age of retirement.
NPS Tier II: Details
Tier II is an optional account, and it can be used to save money for other goals, such as buying a house or car. The money in this account can be withdrawn at any time without any penalty, as per a report in the Mint.
Tier II accounts are additional retirement savings accounts that can be opened by individuals who already have a Tier 1 account. They are similar to mutual funds in that there is no lock-in period and contributions can be withdrawn at any time. However, unlike Tier 1 accounts, Tier 2 accounts do not offer any tax benefits. Withdrawals from Tier II accounts are added to the individual’s total taxable income and are taxed as per the income tax slab, as per ET Money.
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NPS Tier I & II: Key Differences
Withdrawal: The account holder can withdraw 60% of the balance from the Tier 1 account at that time, with the remaining 40% going toward the purchase of annuities. The withdrawal limit for Tier-II, however, is unlimited and the full corpus may be taken.
Lock-In Period: In contrast to Tier-II accounts, which have no lock-in term, Tier-1 accounts are locked in until retirement. So, from Tier-II accounts, one may remove the corpus whenever they like.
Tax Deductions: Section 80CCE of the Income Tax Act entitles contributions to Tier-I accounts to exemptions of up to Rs 1,50,000 . Section 80CCD(1B) grants a second exemption for contributions up to Rs 50,000. However, no corresponding tax benefit is offered for Tier II donations.
