NPS Tier 2 Account Advantages and Disadvantages

The applicant would be free to withdraw their savings anytime. The minimum initial contribution to open a tier 2 account was INR 2,000, but PFRDA revised it to INR 1,000 in 2016.

What are the Features of an NPS Tier 2 Account?

There are several features of NPS Tier 2:

• Voluntary – NPS Tier 2 account is voluntary, i.e., you can contribute at any given point in a financial year and change the amount you want to save every year. 

• Simple and Easy – It is very simple to open an account with any of the Points of Presence.

• Flexibility- A subscriber is allowed to select the Pension Fund and Investment Pattern as per their choice at the time of registration under NPS. Further, he may also make a withdrawal from NPS tier 2 accounts. 

• Portable – It is also portable, meaning the subscribers can operate their account from anywhere, even if they move to another city or change their employment path through vast networks of Point of Presence.

• Transparency – It has transparent investment rules, and consistent monitoring is done by NPS trust. PFRDA regulates it, and the performance of fund managers is reviewed regularly.

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What are the Pros and Cons of an NPS Tier 2 Account?

With NPS Tier 2 advantages, it has several limitations too. The following table represents the pros and cons of an NPS Tier 2 account:

What are the Eligibility Criteria to Open an NPS account and avail of the NPS Tier 2 tax benefit?

The eligibility criteria for opening an NPS Tier 2 account are as follows:

• You need to be a citizen of India, resident or non-resident. 

• You need an active Tier 1 account.

• Only the people who are aged between 18-60 years on the date of submission of the application to the POP-SP. After attaining 60 years of age, you will not be granted to make further contributions to your NPS account. Further, for withdrawal from NPS tier 2, you must apply to POP=SP.

• The subscriber should comply with the Know Your Client compliances as given in the subscriber registration form.

•  You must be a government employee in order to avail NPS Tier 2 tax benefit. You will not get any NPS tier 2 tax benefits if you are a private employee. 

How to Open an NPS Tier 2 Account?

There are two methods to open an NPS Tier 2 account-

Online:

• To apply online, you must visit the eNPS website and click on 'National Pension System.'

• Then a pop-up will appear. Next, you need to click on 'Tier 2 Activation.'

• You need to enter your PRAN number (Permanent Retirement Account Number), Date of Birth, PAN number (Permanent Account Number), and the Captcha on the next page.

• Then, click on 'verify PRAN.'

• Once your PRAN details are verified with your already existing Tier 1 account, your Tier 2 account will get activated. 

Offline:

• You must use the 'Subscriber's POP-SP' to open a Tier 2 account.

• Next, the subscriber needs to install the Annexure 1 Tier 2 information form and send the filled form to the PPOP-SP.

• Your bank details will be submitted to open a Tier 2 account so that the amount will be directly sent to your bank account in case of withdrawals from the NPS tier 2 account.

Once the PRAN account setup is completed, the subscriber will be given a login id and password. Then, they can log in and review their NPS account online with just one click.

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In Conclusion 

An NPS Tier 2 account is a voluntary account that serves as a regular bank account from which basic transactions in the form of deposits and withdrawals from NPS tier 2 can be made. A Tier 2 account functions like an investment option and does not have mandatory withdrawal rules as a Tier 1 account. It also does not have a fixed rate of interest. The government employee can avail of NPS tier 2 tax benefits and can make a withdrawal from NPS tier 2 account.

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