Regular post-retirement income | Additional tax benefit on investments up to ₹50,000 u/s 80CCD (1B) - EEE Category | Regulated by PFRDA (Pension fund regulator under Ministry of Finance, Govt. of India) Invest Now

Introduced in 2009 by the Government of India (GoI), the National Pension System (NPS) is a voluntary retirement scheme. With this scheme, you can make monthly/ yearly contributions, which are invested by the PFRDA till your retirement.  

 

Post that, you withdraw a partial amount and re-invest the rest in an annuity plan. This ensures a regular flow of income during retirement. The scheme is structured with 2 account types - tier 1 and tier 2.

 

NPS tier 1 account and tier 2 account both offer numerous benefits that make your investment fruitful. Having an in-depth understanding of these accounts will enable you to make the most of your investment and enjoy a stress-free retirement. To learn more about the NPS tier 1 account, read on.

What is the National Pension Saving Scheme (NPS) Tier 1 Account?

In an NPS tier 1 account, both public and private sector individuals can subscribe to save for their retirement. Primarily, this account is the basic account available under the scheme and promotes wealth accumulation for retirement.

 

As a permanent retirement account, the lock-in period for an NPS tier 1 account is until you reach the age of 60 years. However, you can make a premature withdrawal under special circumstances. 

 

Once the lock-in period ends, i.e., you turn 60, you can withdraw 60% of the total accumulated amount. The remaining 40% of your maturity amount gets directed towards an annuity scheme, which ensures a regular flow of income during retirement.

Eligibility and Document Requirements for NPS Tier 1 Account

Although Indian citizens can invest in the NPS scheme, there are eligibility and document requirements to note. Here are a few terms to make NPS tier 1 contributions:

  • Eligibility criteria

    1. You should be above 18 but under 60 years of age

    2. KYC compliant 

  • Documents required

    1. Filled and signed application form

    2. Age proof

    3. Address proof

    4. ID proof

 

To know the exact document requirements, you can check the subscriber form. Make sure you have all the required documents on hand while applying to ensure a seamless process. 

Key Features of the NPS Tier 1 Account

Here are the top features of this NPS account that make your investment worthwhile:

 

  • Nominal minimum annual and monthly contributions, ₹1,000 and ₹500

  • EEE tax status, the investment, interest, and maturity amount are exempt from tax

  • Tax deduction of up to ₹2 Lakhs u/s 80CCD (1) and 80CCD (1B) of Income Tax Act

  • 10% deduction on salary (basic + DA) if NPS tier 1 contribution is made by the employer

  • Extension of maturity period by 10 years, i.e., till you attain the age of 70

  • Partial withdrawal and premature closure are available under special terms and conditions

  • Easy portability to ensure that your corpus is secure even if you switch job/ location

Steps for NPS Tier 1 Account Opening

With digital advancement, enrolling in the NPS scheme has become simple and quick. You can also invest in NPS through an offline mode. Given below are steps on how to open an NPS tier 1 account via online and offline modes:

  • Online method

    1. Visit the official NPS website

    2. Navigate to the registration section

    3. Fill in the required information

    4. Submit OTP to log in

    5. Choose an NPS tier 1 account

    6. Select the fund manager of your choice

    7. Enter nominee details

    8. Upload required documents

    9. Make the contribution to complete the registration

    10. Save/ Note your PRAN 

  • Offline method

    1. Visit the nearest registered Point of Presence-Service Providers

    2. Ask for the application form

    3. Fill out the form and attach the required documents

    4. Pay the minimum NPS tier 1 contribution to complete the registration

Investment and Returns from NPS Tier 1 Account

When you start the registration of your NPS tier 1 account, you will be asked to choose between 2 investment strategies: auto choice and active choice. With active choice, you will be able to select the investment funds. 

 

In auto choice, your funds will be invested by fund managers based on your risk profile and appetite. Additionally, you will be given 3 Lifecycle portfolios to choose from, but the equity allocation in all three cycles will start declining once you are 35 years. 

 

The first is LC75, where the equity allocation is capped at 75%. The second is LC50, where equity allocation is capped at 50%, and the third is LC30, with equity allocation capped at 30%. The allocation in government debt securities will start increasing after you turn 35.

 

The returns on your NPS investment depend on the performance of the asset class you choose, and as such, there is no fixed return rate. Since the returns are linked to the market, it is often suggested that you invest early on.

Withdrawal from NPS Tier 1 Account

Generally, you are not allowed to withdraw from a tier 1 account in the NPS scheme. But there are certain circumstances under which you can make a partial withdrawal. You can make only 3 partial withdrawals during the entire tenor of the NPS investment. 

 

Keep in mind that the amount you can withdraw is capped at 25% of the total NPS tier 1 contribution by you. You can check Regulation 8 of the PFRDA Regulations, 2015, for detailed insight into when and how much you can withdraw from your tier 1 account.

Similar Retirement Investment Instruments

While the National Pension System is among the safest investment options to plan and protect your retirement years, there are option investments to choose as well. If you are a risk-averse investor, you can opt for pension plans offered by LIC. 

 

Alternatively, you can choose ULIPs, mutual funds, or fixed deposits. At Bajaj Markets, you access a host of investment options with a simple, easy, and convenient application process. Invest today to take the first step towards securing your retirement in just a few clicks. 

 

Note:

*Bajaj Finserv Direct Limited (BFDL) has partnered with Bajaj Financial Securities Limited (BSFL) registered with PFRDA as Point of Presence (POP) for NPS (PFRDA Reg. No. POP325022021) for sourcing leads or distributing the NPS products. By clicking on “Invest Now” you shall be redirected to BFSL Site (Website/App) and the terms and conditions of BFSL shall additionally apply.

 

Please note that there are no guaranteed returns on Investment in NPS. While NPS is a government scheme, the corpus is created according to the returns, which are generated under the corporate bonds, government securities, and the equity. Hence, the market fluctuations can affect the returns.

 

** The PFRDA has stated that the transferred funds from EPF to NPS will not be treated as income of the current year and hence, not taxed. You also can’t claim the deduction under the 80CCD for the transferred amount to NPS. Under this section, you can claim deduction for a new investment and not for a transfer.

FAQs on NPS Tier 1 Account

You can make a partial withdrawal from an NPS tier 1 account if you have invested for at least 10 years. The partial withdrawal is subject to terms and conditions and capped at 25% of your total investment.

Yes, the process for NPS tier 1 account opening can be done offline by visiting the nearest registered Point of Presence-Service Providers.

The tax benefits of NPS tier 1 contributions are regulated by the sections. You can claim a total deduction of ₹2 Lakhs, including your contribution in the tier 1 NPS account. Additionally, NPS is a EEE scheme, which means the investment, interest, and maturity amount is exempt from taxation, provided the terms and conditions are met.

The minimum contribution in the NPS tier 1 account is ₹500 per month or ₹1,000 every year. However, there is no upper limit on the contributions you can make to this account.

Yes, you can withdraw from your tier 1 NPS account if you retire before 60. However, the withdrawal is capped at 20%, and the rest is directed towards an annuity plan.

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