Understand NPS tier 2 Vs tier 1 accounts

Tier I Account

Tier II Account

Who Is Eligible?

All Indian citizens between the ages of 18 and 65

Any Indian citizen with an active Tier I account

Minimum Contribution Required to Open Account

INR 500

INR 1,000

Minimum Annual Contribution Required

At least one contribution of INR 1,000 is required each year.

It is not mandatory to make a contribution every year.

Are Contributions Exempt from Tax?

Contributions up to INR 1,50,000per year qualify for deductions under Section 80C of the Income Tax Act.

Further deductions of INR 50,000 can be availed under Section 80CCD(1B).

No, contributions made to Tier II accounts are not exempt from tax.

Rules on Withdrawals

No withdrawals can be made for the first three years.

After that, up to 25% of the fund value can be withdrawn, but only for specific purposes.

Once the account holder reaches the age of 60, 60% of the fund value can be withdrawn and the balance amount is used to purchase an annuity.

There are flexible

withdrawal and exit rules.

Withdrawals can be made at any time.

Taxes on Withdrawals

60% of the corpus, which is what can be withdrawn at maturity, is exempt from taxes.

The withdrawn amounts are added to the account holder's income, which is taxed as per the current income tax slab rates.

Fund Management Charges

The fund management charge, known as the Investment Management Fee, is 0.01% for both Tier I and Tier II accounts.

Availability of Asset Classes

The following asset classes are available to both Tier I and Tier II account holders:

• Equity (E)

• Corporate Debt (C)

• Government Securities (G)

• Alternative Investment Funds (A)