The National Pension System, or NPS, was introduced in 2004 and thrown open to all Indians in 2009. Since then, it has been gaining popularity. According to reports, the number of NPS subscribers from the private sector in the country stood at 57.44 lakh on July 20 this year. It registered a rise of 9.12 lakh year-on-year.
NPS allows 2 accounts for a subscriber. These are referred to as Tier 1 and Tier accounts. The Tier 1 account is the main NPS account which creates a retirement fund for a subscriber, whereas the Tier 2 account is like a savings account that offers flexibility for deposits and withdrawals. Let’s explore them in a little detail.
Partial withdrawal allowed in NPS Tier 1 account
If you want to subscribe to NPS, you have to open a Tier account. One can continue investing in this account till one becomes 60. But even after you become a senior citizen, you are allowed to stretch the investment till 70 – for 10 more years. Significantly, a subscriber can make partial withdrawals from the Tier 1 account for important financial obligations such as healthcare exigencies, wedding expenses and cost of education.
The NPS investments that are eligible for income tax deductions are those made in the Tier 1 account. NPS rules also allow you to close this account prematurely, though with the condition that it can be applied for only after the expiry of 3 years from the opening of the account. Moreover, one can make only 3 withdrawals from the account. However, if one wants to close the account altogether, the subscriber will not be allowed to take out more than 20% of the amount accumulated in the Tier 1 account – the rest of the money will be reserved to buy annuity. In other words, 80% will be used to pay a monthly pension after you attain 60 years.
Who can open a Tier 2 NPS account
You can open a Tier 2 account if you have a Tier 1 account. It offers flexibility of withdrawals or investments in NPS. In order words, withdrawal from Tier 2 account is free. You should be between 18 and 60 years and must have PRAN (Permanent Retirement Account Number) assigned to you.
