You have several options when it comes to opening an NPS account, and if you are just starting out — it is better to familiarize yourself with at least these three options:
- Tier 1 NPS Account
- Tier 2 NPS Account
- Swavalamban Scheme
In this post, I’m going to talk about them briefly, discuss what differentiates one from the other, and which one is appropriate for what type of investor.
Tier 1 NPS Account
The first account is called Tier 1 NPS Account, and the Tier 1 Account is mandatory for all central government employees. It is mandatory for them to contribute 10% of their basic salary plus DA plus DP every month towards this account, and the government matches this contribution.
There are severe restrictions on how money can be withdrawn from the Tier 1 account, as it is necessary to invest 80% of your money in an annuity with Insurance Regulatory Development Authority (IRDA) if you withdraw before age 60. You can keep the remaining 20% with you.
When you attain the age of 60, you have to invest at least 40% in an annuity with IRDA; the remaining can be withdrawn in lump-sum or in a phased manner.
Even if you are not a government employee, you can still open a Tier 1 account, and if you are interested in NPS, you will need to open a Tier 1 account as that’s necessary in order to open a Tier 2 account, which I’ll come to in a moment.
There is a minimum that you have to commit to investing in NPS, and for the Tier 1 account that minimum is Rs. 6,000 per year.
Tier 2 NPS Account
The Tier 2 NPS account is very similar to the Tier 1 account, and if you are not a government employee who wants to invest in NPS, you would want to invest the minimum of Rs. 6,000 in Tier 1 and then invest the rest of your money in the Tier 2 account.
This is because Tier 2 is quite similar to Tier 1 in all respects except for the harsh withdrawal conditions. You are free to withdraw your money from the Tier 2 account any time that you want without any penalties.
Minimum amount for opening Tier 2 account is Rs. 1,000 and minimum balance required at the end of the year is Rs. 2,000. You need to make at least 4 contributions in a year.
Swavalamban Scheme
This scheme is really for the financially less fortunate members of the society and is really a way for the government to incentivize investments for them.
The government pays Rs. 1,000 every year for four years, if you open a NPS account under the Swavalamban scheme, but there are limitations on who can open an account under the Swavalamban scheme.
Following conditions apply:
- Subscriber is not covered under employer assisted retirement benefit scheme and also not covered by social security schemes under any of the following laws:
- Employee Provident Fund and Miscellaneous Provision Act, 1952
- The Coal Mines Provident Fund and Miscellaneous Provision Act, 1948
- The Seamen’s Provident Fund Act, 1966
- The Assam Tea Plantation Provident Fund and Pension Fund Scheme Act, 1955
- The Jammu & Kashmir Employee Provident Fund Act, 1961
- Subscriber contribution in NPS is minimum Rs. 1000 and maximum Rs.12000 per annum, for both Tier1 and Tier II taken together, provided subscriber makes minimum contribution of Rs.1000 per annum to his Tier 1 account
Based on the limitations mentioned above, I think most people reading this blog will be ineligible.
Conclusion
If you are not a Central Government employee who has to put in money mandatorily in NPS then you should be very cautious about saving money here.
This is because there are restrictions on where you can invest your money after you get it at retirement. They make you buy annuities which are not the greatest products right now. I don’t see much value in investing in NPS as it stands today because of the frequent changes, and uncertainties surrounding this scheme. You may as well invest this money on your own in the a debt or equity product based on your preference, and stay away from the restrictions imposed on you by the scheme.
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Hi
My Name is Sachin, i am working with a leading MNC in food sector. I have Tier -1 NPS account. I wanted to know about the Tier-2 A/C, can i invest the money in tier-2 a/c as well ? Is investment in tier -2 eligible for tax exemption ?
i worked in PSB and resigned from job after working for 2 years.i have not yet opened NPS a/c. but the amount has been deducted from my salary towards NPS every month.Is there any possibility of withdrawing the accumulated money towards NPS.
i worked in PSB and resigned from job after working for 2 years.i have not yet opened NPS a/c. but the amount has been deducted from my salary towards NPS every month.Is there any possibility of withdrawing the accumulated money towards NPS.
My query is about Swavalamban Scheme
I have read somewhere that contribution has no upper limit
Secondly i am depositing money 12000/- per year from last 3 years, but till date i do not know about the status of my contribution.
I am having PRAN No.
Where do i check the status.
Kindly help me.
dear sir,
I was working in a nationalized bank where I was contributing to NPS tier 1 for four years.
Now I have shifted to pvt. sector and is contributing to NPS tier 2 as now I cannot contribute to tier 1.I am not aware how to transfer my money from tier 1 to tier 2 which is lying blocked.Please guide me on this.
Thanks,
Ashok
Sir
My name is anil.
I have one doubt. I am a bank employe. I am contributing 10% ang bank is also same amount in it now question is whether it is exempted from income tax other than 150000 or it will be included within 150000. If I want extra benefit of 50000. What should I do. As I have only tier 1 account.
Please advise on my mail.
Sir,
Pl. guide me if I apply for tier 2 we will get additional tax benefit of 50000 or only this tax benefit u/s 80CCD we get in tier 1
What is NPS and its New Features?
More info @ https://www.moneydial.com/what-is-nps-and-its-new-features/
Hi Sir,
My name is Mahesh, I was govt employee for a 3 years then i took VRS from Service during my tenure i contributed to NPS(tier 1) now total outstanding balance amount is Rs 1 lakh change. Can i transfer this amount to tier 2 account.
Hey ! I was enlightened by the analysis , Does someone know where I could possibly locate a sample NY DTF ST-124 document to use ?
Hi!
Iam a state govt employee of Himachal Pradesh Higher Education Deptt. I have been regularly contributing towards NPS for the last ten years. I would like to shift to Tier 2 option for I want to make withdrawls. What is the process of withdrawl….Kindly infom me in detail. And also let me know whether it is beneficial for me to shift to Tier 2 or not?
I am filling NPS form.Will you tell me which account is better tier 1 or tier 2? please tell me how many options I can choose in Active Choice and how to fill asset allocation column
dear mam,
actually ur question is all related to the type of ur employment coz it varies from employer to employer. bt yes, for govt employee its almost same. about ur question that which better tier1 or tier2? in all cases u first need to submit ur form in tier 1st and dn only u cn proceed on to tier 2. hope it vl serve ur end.
regards…
Dear Sir,
I am serving in a private educational institution as an Assistant Professor. I would like to know about the Tier 1, investment under NPS system. Please be kind enough to inform me that, how much I can invest in NPS(Tier 1). I have already exceeded the limit of deduction u/s 80CCC. Can I get any income tax deduction under NPS (Tier 1)? If so, what is the limit I am eligible for the tax rebate?
Am I permitted to invest now, so as to seek IT deduction for financial year 2015-16.
Please reply me at the earliest to proceed at my end.
Regards,
Dr.D.Nagasamy Venkatesh
dear sir rules for nps is this plz check available.
dear sir
under 80 c u can take the tex benifit of 1,50000 under 80 c but when u invest in nps u wll get extrz 50000 tex benifit under 80 ccd that is aplicable for nps only .its not matter u r coming in under the 10% of income tex slab or 30 % u can get 100% tex benifit of 50000 under 80 ccd sir for better help u plz u can drop your mobile no i will call u or i try to suggest better about nps
with regards
goutam
I am working in a private sector corporate. I want to open NPS account. Below is my question.
1. Is Tire 1 account mandatory to open Tire 2 account? Can I open Tire 2 account without opening Tire 1 account?
2. 10% of basic contribution in Tire 1 account is mandatory or can I contribute lesser than 10%? I have already have EPF.
3. How can I tell my employer to contribute 10% over my own 10% contribution?
You can call me for explanation. My mobile no. is 7042575404
Dear Sir,
I am serving in a private educational institution as an Assistant Professor. I would like to know about the Tier 1, investment under NPS system. Please be kind enough to inform me that, how much I can invest in NPS(Tier 1). I have already exceeded the limit of deduction u/s 80CCC. Can I get any income tax deduction under NPS (Tier 1)? If so, what is the limit I am eligible for the tax rebate?
Am I permitted to invest now, so as to seek IT deduction for financial year 2015-26.
Please reply me at the earliest to proceed at my end.
Regards,
Dr.D.Nagasamy Venkatesh
I am central government employee, DOA 2005 want to know about tier2, my deductions are in tier1 , tier2 showing default. Can I have options for taking more exposure in equity, if yes how?
Really beautiful post. Thank you for this information.
plz give information that how to create tier 2 account in nps as i am a central govt employee in defence .and what is a last limit per month to contribute in tier 2 and also can i withdraw my pf money in tier 1 as give some more information
I am enrolled in nps in tier 1. Wanted to know if I also opt for tier 2 Will this have any change to my tier 1 conditions.
Iam state government employee. I working since 2004. Now I interest to Join NPS. Please give more information about which type of NPS best.
My query is about Swavalamban Scheme
I have read somewhere that contribution has no upper limit
Secondly i am depositing money 12000/- per year from last 3 years, but till date i do not know about the status of my contribution.
I am having PRAN No.
Where do i check the status.
Kindly help me.