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The National Pension Scheme is a pension scheme introduced by the Government of India in order to offer financial security to senior citizens during their post-retirement phase. Customers have the option to choose the type of investment fund they wish to use for their corpus creation. So, the amount collected for the purpose of the pension corpus, is invested as per the choice of the subscriber.
The National Pension Scheme offers an effective way to plan and save for your retirement through safe and regulated market investment instruments. The National Pension Scheme is regulated by the ‘Pension Fund regulatory and Development authority (PFRDA)’, and the ‘National Pension System Trust’ is responsible to establish PFRDA. The features and benefits of the National Pension Scheme are extended to all the residents of India, whether resident or non-resident. The features are not applicable and extended to employees of armed forces.
Let us understand the features, benefits and eligibility criteria of National Pension Scheme’s Tier 2 account.
The features of Tier 2 account under National Pension Scheme are different from the features of Tier 1 account. Following are the key features of Tier 2 account opened under the National Pension Scheme:
Any individual can open an account under the NPS through authorized entities in the following two manners:
The offline channel refers to opening the Tier 2 account with the help of partner entities. The following partner entities will help subscribers open a Tier 2 account under NPS.
The partner entities of offline channel under the NPS are:
POPs and banks are facilitators for individuals who wish to invest under NPS. The POPs and Banks help subscribers by providing necessary forms required for opening the account. Similarly, they provide necessary help required for filling up of forms, providing in-depth information related to NPS account and any other relevant information related to the same.
The online channel refers to submitting the documents online through ‘e-NPS’ portal. Kindly note, Tier 2 account can be opened by subscribers who are holding a valid NPS Tier 1 account. So, the subscribers who wish to open a Tier 2 account along with Tier 1 account can do so by following the steps for opening Tier 1 account.
Following are the steps that will help any individual to open a Tier 1 account with NPS.
A subscriber can register to the NPS account in two ways namely:
The key criteria for opening a Tier 2 account under National Pension Scheme is that the subscriber must hold a valid and active Tier 1 account under the scheme. So, all the subscribers who have an active Tier 1 account are eligible to open Tier 2 account under the National Pension Scheme. Therefore, the documents required for opening Tier 2 account under NPS are the documents that were submitted for opening Tier 1 account. Following is the list of documents required for opening Tier 1 account under NPS.
Once these documents are submitted along with initial registration fees, the PFRDA shall open Tier 1 account and allocate a 12 digit account number called as PRAN. Thus, PRAN Card is a sufficient document for opening Tier 2 account under the National Pension Scheme.
The subscribers of Tier 2 account cannot avail any tax benefit for their Tier 2 account under NPS. Unlike Tier 1 account, where there are numerous tax benefits available to the subscriber, the NPS Tier 2 account does not offer any tax benefit to the subscribers under the Income Tax Act, 1961.
Thus, no investments done under the NPS Tier 2 account qualify for tax benefit u/s 80C of the Income Tax Act, 1961. This is because the nature of the Tier 2 account is voluntary.
Also, there is no lock-in period associated with the investments done in NPS Tier 2 account. This is because only investments that are eligible for an Income Tax Deduction U/S 80C have a lock-in period of 3 years. So, NPS Tier 2 accounts do not have a lock in period. However, all the withdrawals done from the Tier 2 account are subject to income tax as per the tax slab at the time of withdrawal. Let us understand this with an example.
If the withdrawal from the Tier 2 account is made within 1 year of investment, then such withdrawal shall attract short-term capital gain tax. However, if the withdrawal was done after completion of 1 year from the date of investment, it would have attracted long-term capital gain tax only.
There are no rules pertaining to withdrawal of funds from Tier 2 account as it is a voluntary saving account. So, subscribers can withdraw the funds at any given point from their NPS Tier 2 account as per their choice.
The returns earned on NPS Tier 2 account are not fixed as the investment is done into various market related instruments. The investment of the subscribers’ corpus is done in 4 varied asset classes under active choice namely:
The returns are earned as per the investment portfolio decided by the subscriber as the subscriber can choose and decide the splitting of funds within various asset classes. The subscribers can also choose the fund manger for their NPS Tier 2 account. Subscribers can change their designated fund manager once a year if they are unsatisfied by the performance of the fund manager.
Who can open Tier 2 NPS?
The subscribers who have an active Tier 1 account under the NPS can open a Tier 2 account. Following are the terms and conditions for opening a Tier 2 NPS account
The account can be opened by any resident Indian and NRI
Subscribers can open Tier 2 account simultaneously with Tier 1 account
All the government employees who hold an active Tier 1 Account under NPS can open Tier 2 account.
However, OCI (Overseas Citizens of India) and PIO (Person of Indian Origin) card holders and HUFs are not eligible for opening of NPS account.
Can I withdraw money from NPS Tier 2?
Yes, Tier 2 account under the Nations Pension Scheme is a voluntary account, and hence, subscribers can withdraw money at any point of time.
Can I appoint nominee for my NPS Tier 2 account?
Yes, subscribers are required to appoint a nominee for their NPS Tier 2 account at the time of opening the account.
How many nominee/ nominees can I appoint for my NPS Tier 2 account?
A subscriber can appoint a maximum of 3 nominees for their NPS Tier 2 account. If any subscriber provides more than 1 nominee, then the subscriber is required to specify the percentage of their corpus which they wish to allocate to each of their nominee. The total percentage of share allocated across all the nominees must aggregate to 100%.
What is the minimum contribution amount required towards Tier 2 account?
The minimum contribution amount required for opening the account is Rs. 1000, while the subsequent minimum contribution amount is Rs. 250.