Account Types in NPS
Table of Contents
The organization's full name is National Pension Systems. It is a contribution-based pension scheme established by the Indian government to provide an old age retirement fund to anybody who wishes to participate. The PFRDA is in charge of regulating and supervising the industry (Pension Fund Regulatory and Development Authority). It was initially confined to government employees, but it was expanded to include non-government residents in 2009.
In addition to being a market-linked product, NPS provides incentives based on the success of the fund. The scheme's primary goal is to provide all Indian residents with an appealing long-term savings option that provides secure and appropriate market-based returns for retirement planning.Any Indian citizen between the ages of 18 and 65 can establish an account. To learn more about NPS Accounts, go here.
NPS Account Types
The following are the several types of NPS accounts that an individual may choose from:
1. Tier 1 Account
A Tier 1 account is a permanent retirement account that allows no withdrawals. It had a lock-in term that lasted until the participant turned 60 prior to 2011. The PFRDA, the regulating authority, did, however, make a few changes in 2011. According to their new regulations, suitable employees would be eligible for early retirement from the military after 15 years of service.
Premature withdrawals are classified as repayable advances, which is an uncommon occurrence. After 25 years of service, a person may additionally withdraw up to 50% of their contribution. Individuals will be able to use these withdrawals to help them in a variety of situations that require quick financial assistance, such as acute sickness.
2. Tier 2 Account
Individuals with an NPS Tier 2 Account can withdraw an unlimited amount of money from their accounts. It works similarly to a savings account. The key distinction is that withdrawing cash from this account is more difficult than withdrawing monies from a savings account.
- It's also worth mentioning that an NPS Tier 2 account may only be opened if a Tier 1 account is already open.
- An NPS Tier 1 account requires a monthly payment of Rs 500 and an annual contribution of Rs 6000. A Tier 2 account, on the other hand, requires a minimum payment of Rs 1000 and a transaction fee of Rs 250.
Creating an NPS Account
- If you have a bank account with one of the 17 NSDL (National Securities Depository Ltd)-registered institutions, you can open an NPS account online.
- If a person's PAN is connected to their savings account, they can apply for an eNPS account online at the official eNPS website.
- The rest of the KYC and application processing will be handled by the bank.
- If you have an Aadhaar card, you can open an e-NPS account. On February 17, 2016, the PFRDA (Pension Fund Regulatory Authority) recognised Aadhaar as an e-KYC.
- It must, however, be associated with a person's phone number and savings account number.
- During the verification process, an individual will always get an OTP on their registered phone number.
Investing Money Into NPS
NPS investments may be eligible for a tax deduction under Internal Revenue Code Section 80C. Individuals who invest in NPS along with other tax-saving products like PPF, ELSS, and life insurance can claim a maximum deduction of Rs.150,000.
Furthermore, the Pension Scheme has gained support from individual taxpayers as a result of Budget 2016 providing an extra benefit of Rs.50,000 to anyone investing in NPS under Section 80CCD (1b).
Those who want to invest in NPS but do not yet have their Aadhaar and PAN numbers linked to their savings bank account will have to wait until the following fiscal year. This is because, as the fiscal year comes to a conclusion, the number of people wanting to maximize their tax advantages has skyrocketed. As a result, application processing might take anywhere from 15 to 20 days. A person's PRAN will not be available until the fiscal year is over (Permanent Retirement Account Number).
Take Away
Individuals are also prohibited from freely transferring funds between NPS funds. The investment cannot be withdrawn for at least one year. As a consequence, picking the right pension fund is crucial.
