National Pension Scheme Tier I

Planning for retirement is extremely important for a comfortable financially secure life in the golden period of life. A well-created retirement corpus will help to leave a joyous retirement life wherein finances will never be a worry.

The National Pension Scheme is one retirement cum pension scheme that helps to avail the double benefit of both retirement planning as well as tax-saving and has been introduced by the Indian government.

What is NPS Tier-I Account?

The NPS Tier-I account is not only a retirement account but also a primary NPS account. This means that an NPS Tier-II account can only be opened after the NPS Tier-I account has been opened.

The Tier-I NPS account is the focus to fulfil the needs of the pension for both the private and public sector employees.

Eligibility Criteria of Opening the NPS Tier-I Account

The following is the eligibility criteria for opening the NPS Tier-I account:

  • The individual needs to be an Indian citizen. Even the NRIs’ can open the Tier-I account.
  • The individual needs to be between 18 years and 65 years. In case an individual aged between 60 years and 65 years plan to open the NPS Tier-I account then special rules will be applied.
  • The minimum cap of contribution for the NPS Tier-I account is Rs 1,000 each year and there is no upper limit for the maximum contribution. However, the initial contribution is Rs 500. The lock-in period remains 60 years of age.

How Does NPS Tier-I Account Work?

When planning to invest in the NPS Tier-I account, a choice of two investments strategies is available, which are active and auto choice strategy. The active choice strategy is when investing in the choice of investment funds whereas under the auto choice strategy the investment is then allocated to funds in the ratio predetermined on the premise of the risk profile. The investment funds available within the National Pension Scheme are listed below:

  • Asset Class A: Investing in alternative assets.
  • Asset Class C: Apart from government securities, investing in fixed income tools.
  • Asset Class E: Investing in the equity of 50% of the portfolio.
  • Asset Class G: Investing in government securities.

To manage the investment, the following are the eight pension fund managers registered with the PFRDA that one may choose:

  • DSP Black Rock Pension Fund
  • HDFC Pension Management Company
  • ICICI Prudential Pension Fund
  • Kotak Mahindra Pension Fund
  • LIC Pension Fund
  • Reliance Capital Pension Fund
  • SBI Pension Fund
  • UTI Retirement Solutions Pension Fund

One can easily switch between the investment funds and investment strategy as per the need. On the premise of the underlying asset's performance, the investment will grow and earn a return.

Documents Required to Open the NPS Tier-I Account

The following are the important documents required to open the NPS Tier-I account:

  • The filled registration form of the NPS Tier-1 account
  • Identity proof
  • Address Proof
  • Date of Birth/ Age Proof

How to Open the NPS Tier-I Account?

Any individual who is looking forward to opening the NPS Tier-I account should have a PAN card, Aadhar card and bank account.

It is to open the NPS Tier-I account both online as well as offline. First, take a look below to understand opening the NPS Tier-I account offline:

  • Visit the nearest NPS Point-of-Presence that is a designated bank of the branch.
  • From the Point-of-Presence take the form and complete the form
  • Attach the important documents along with the completed account opening NPS Tier-I account form and then submit.
  • Invest the amount accordingly.

To open the NPS Tier-I account online, follow the steps below:

  • Visit the official website of eNPS. Navigate to the section of registration.
  • Enter the information requested and authenticate the OTP shared on the phone.
  • Select the account type ‘Tier-I’. It is important to be noted that the Tier-II account cannot be opened until the NPS Tier-I account is opened.
  • Select a suitable fund manager. Next, select the investment mode.
  • Provide the nominee details and specify the share respectively.
  • Upload the documents requested in the format prescribed.
  • Make the initial contribution of Rs 500 and complete the process of registration.
  • The Permanent Retirement Account Number will be generated upon completing the registration.

Withdraw Rules for NPS Tier-I Account

An individual can make up to three partial withdrawals from the NPS Tier-I account. The withdrawals can be made three years after the account opening.

It can be made on grounds such as the buying of a house, higher education of children, medical treatment, and so forth.

The withdrawals cannot exceed 25% in aggregate of the contributions and remain tax-free.

The NPS Tier-I account will mature at 60 years of age and up to 60 per cent of the NPS corpus can be withdrawn. In case individual wishes to buy an annuity then 40% of the remaining balance can be utilized.

An individual can opt for the premature exit before 60 years of age provided the NPS account has completed three years. Under such a situation, 20% of the maximum corpus can be withdrawn, which is a taxable withdrawal. 80% of the balance would be converted to an annuity.

How to Withdraw Money from the NPS Tier-I Account?

In case individual wishes to withdraw from the NPS Tier-I account, simply log into the NPS account and provide the details such as the PRAN and birth date. Post the log-in the withdrawals can be made into the account.

Or else visit the nearby branch of the NPS Point-of-Presence and submit the request withdrawal form.

How to Close Money from the NPS Tier-I Account?

Submit the request to close the NPS Tier-I account form by logging into the account online. Besides, one can also visit the nearby branch of the NPS Point-of-Presence and submit the closure form.

NPS Tier-I Account Tax Benefits

Take a look below to understand the following tax benefits:

  • An individual obtains tax deduction within Section 80CCD (1) AND 80CCD (2) upon the contributions to the National Pension Scheme up to Rs 1.5 lakh each year.
  • For the employees, the highest contribution entitled for tax deduction within the section is limited to 20 per cent of the salary.
  • The maximum contribution entitled for tax deduction within the section is limited to 20 per cent of the income for the self-employed.
  • Additionally, one also avails the tax deduction of up to Rs 50,000 within Section 80CCD (1b). Therefore, the complete tax benefit upon the contributions to the National Pension Scheme is RS 2 lakh each year.
  • The returns on NPS remain tax-exempted; however, the amount is retained in the account of NPS.
  • Up to 60 per cent of the accumulated corpus of the NPS upon maturity can be withdrawn free of tax.
Written By: PolicyBazaar - Updated: 28 March 2021
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