NPS as an investment tool is considered suitable for meeting expenses in post-retirement life. NPS also helps in tax-saving under Section 80C & 80CCD.
Since NPS is a retirement pension plan, 60% of the accumulated corpus is tax-free on maturity at the age of 60, the remaining 40% must be used to buy an annuity (fixed pension) which is taxable.
Tier-1 and Tier-2 Accounts
NPS Tier-1 account is a mandatory account whereas Tier 2 account is a voluntary one. This means you can only open the Tier-2 account if you have a Tier 1 account. Main difference between the two accounts is you can only withdraw money from the Tier-2 account. Minimum amount of investment in an NPS account is Rs 6,000 in a financial year .
Benefits of NPS Tier-2 Account:
No maintenance charges are involved in opening a Tier 2 NPS account.
The withdrawal amount from the Tier 2 account can be used for day to day expenses.
Money can be transferred from Tier 1 to Tier 2 account whenever needed
No minimum balance required in Tier 2 account
No exit load during withdrawal
Can file a nomination
The Tier-2 account can only be opened if you have a Tier-1 account. NRIs cannot avail this facility.
If you want to withdraw money before the age of 60 from a Tier 1 account, then there are restrictions on it. However, there is a facility to withdraw 25% of the funds for children’s higher education, marriage, or buying a house and for medical expenses. This facility is available when you have completed at least three years of NPS investment. But Tier 2 account gives flexibility in this case. You can withdraw money whenever you want.
Published: April 15, 2021, 20:01 IST
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