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

National Pension Scheme (NPS) is a voluntary contribution-based scheme started by the Government of India to provide pension benefits to the salaried citizen. The scheme enables you to invest in equities and government securities and earn returns. 

 

The government offers two tiers of national pension accounts: NPS Tier 1 and NPS Tier 2 Accounts. The former offers post-retirement benefits, which means you can withdraw from a Tier 1 account only after reaching 60 years of age.

 

On the other hand, an NPS Tier 2 Account is only for those who have an existing Tier 1 account. This account offers flexibility in terms of withdrawals without the penalty. Before investing in this scheme, read on to know everything you must know about the NPS tier 2 account.

NPS Tier 2 Account: What it is

The NPS Tier 2 account is part of the National Pension Scheme, and is an add-on to the Tier 1 account. Meaning, you must have an active Tier 1 account if you want to open an NPS tier 2 account. 

 

These accounts do not require a minimum annual contribution, as is the case with a Tier 1 account. However, you will have to invest at least ₹1,000 as the minimum contribution. As such, it is a better option in terms of flexibility with investing. 

Eligibility and Documentation for an NPS Tier 2 Account

In order to open an NPS Tier 2 account, you need to fulfil the following requirements: 

 

  • Citizenship: Must be an Indian citizen (NRIs can also avail of this pension scheme)

  • Age: Be between 18-60 years of age

  • Bank Account: Have a current or savings bank account

  • PAN Card: Have a valid PAN card issued by the Income Tax Department

  • KYC Completion: All the Know Your Customer (KYC) requirements need to be fulfilled by providing proper documentation

  • NPS Tier 1 Account: Have an active NPS Tier 1 Account

 

Now that you know about the eligibility criteria, given below are the documents you are required to submit when opening an NPS Tier 2 account:

  • Completed Registration Form: Registration form filled with your accurate information

  • Identity Proof ID: A photo ID card issued by a government authority (Aadhar Card, Voter ID, etc.)

  • Address Proof: Address proof in the form of a domicile certificate, utility bills, etc.

  • Birth Certificate: Proof of your age

  • Bank Account Details: Current or savings bank account details for e-transfer of funds for contributions

  • PAN Card: PAN Card is mandatory to open an NPS account

Benefits of an NPS Tier 2 Account

An NPS Tier 2 account offers a multitude of advantages for you as an investor. Given below are some of the NPS Tier 2 benefits that make opting for this investment tool an attractive option. 

 

  • Voluntary Scheme: This pension scheme is voluntary, which means that there are no mandatory terms for contributions.

  • Simple and Easy Process: An NPS Tier 2 account is really simple to open. It can even be opened online without having to visit any physical office. 

  • Flexible: NPS Tier 2 accounts offer flexible terms on investment patterns. You can choose the investing routes you wish to take at the time of registration. These can differ from the option you picked when opening your tier 1 account. 

  • Withdrawals: Unlike in a Tier 1 account, you can withdraw from your NPS Tier 2 account without penalties. 

  • Portability: One of the benefits of this scheme is that it is absolutely portable, and you can operate your account even online. Moreover, you don’t need to open a new account when changing your employment or location.

  • Transparent: NPS has totally transparent investment regulations under the constant vigil of an NPS Trust. Moreover, the Pension Fund Regulatory and Development Authority (PFRDA), an autonomous body for the supervision of pensions, regulates the pension scheme.

  • Tax Benefits:

    By investing in an NPS Tier 2 account, you can avail certain tax benefits. These deductions are on your annual taxable income under the provision of the Income Tax Act of 1961. 

Steps to open an NPS Tier 2 Account

Now that you are clear about the benefits of an NPS Tier 2 Account, given below are a few steps to open it. You can register for an account either online or offline. 

1. Online

Here’s how to open an NPS Tier 2 account using online service:

  • Step 1: Visit the e-NPS website and click on the ‘National Pension Scheme’ button.

  • Step 2: Click on ‘Tier 2 Activation’ when a pop appears.

  • Step 3: Fill in the details to register, including your Permanent Retirement Account Number (PRAN), PAN card details, and date of birth. Enter the captcha to proceed to the next stage.

  • Step 4: Click on the ‘Verify PRAN’ button.

  • Step 5: Once your PRAN and other details are verified from your Tier 1 account, an NPS Tier 2 account will be created.

2. Offline

Follow the steps given below to open your NPS Tier 2 account offline:

  • Step 1: First of all, you need to choose a Point of Presence-Service Provider (POP-SP). POP-SPs are authorised by National Pension Scheme Trust (NPST) and offer NPS-related services. 

  • Step 2: Download Annexure 1 from the e-NPS website or find it from your POP-SP. Fill in all the details accurately in the Annexure.   

  • Step 3: To start investing in your NPS Tier 2 account, choose the investment plans according to your preference.

Investment and Returns from NPS Tier 2 Account

Before investing in an NPS account, you must also be aware of the contributions you need to make to it. Here is what you need to know:

 

  • You only need to contribute ₹1,000 at the time of opening the account

  • You also need to maintain a balance of ₹2,000

The following table shows the NPS tier 2 returns you can earn by investing in different fund variants. This would help you make the right choice about which fund to choose.

Asset Classes

1-year Returns(%)*

5-year Returns(%)*

10-year Returns(%)*

Equity

15.19%-17.92%

13.05%-15.83%

10.35%-10.58%

Corporate Bonds

12.71%-16.36%

9.55%-10.17%

9.86%-10.60%

Government Bonds

12.61%-13.42%

10.40%-12.00%

9.59%-10.07%

Disclaimer: Above-mentioned rates are indicative and can vary based on market performance. 

Withdrawal from an NPS Tier 2 Account

Withdrawals from an NPS Tier 2 Account can be made under certain conditions.  In case of a withdrawal, you need to submit a request with your POP-SP by filling out the UOS-S12 form. The redemption amount is taxed based on the amount that has been withdrawn. 

 

It takes three days for the redeemed amount of withdrawal to get transferred to your bank account. However, there are no restrictions, and you can withdraw the entire amount in the tier 2 account, if required. Do note that this amount is taxable.

Similar Retirement Investment Instruments

The National Pension System investment does carry a moderate risk, and you may not want to go this route. Thankfully, you can choose other schemes to fulfil your long-term goals. These may include mutual funds, more specifically ELSS, with a short lock-in period of 3 years. 

 

Alternatively, there are fixed-income instruments too. You can find all these and more on Bajaj Markets. Find the issuer of your choice and invest online with ease. 

FAQs

What are the investment options under the National Pension System?

You can choose the fund variant you want to invest in. These include equities, corporate bonds, government securities, and other alternate funds. 

What are the tax exemptions available with NPS Tier 2 accounts?

You can claim up to ₹1.5 Lakhs of tax deductions on your taxable income under Section 80C of the Income Tax Act. 

 

You can also opt for additional deductions of up to ₹50,000 Section 80CCD (1b) with an NPS Tier 2 account. Moreover, under 80CCD (2), deductions are available if the employer contributes 10% of the basic salary.

How can I open an NPS Tier 2 account?

You can open an NPS Tier 2 account either offline or online from the e-NPS website.

What are POP-SPs?

POP-SPs are authorised entities by the PFRAA to act as a bridge between you and the NPS architecture.

Home
active_tab
Loan Offer
active_tab
Download App
active_tab
CIBIL Score
active_tab