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National Pension Scheme (NPS) Tier 1

The Central Government of India has introduced an extraordinary pension scheme for the citizens of India called the National Pension Scheme. The scheme has been introduced w.e.f 01st January 2004 for the benefit of all the Indian Citizens, except the armed forces. This has been made available to the citizens since 01st May 2009.

The regulatory body of the National Pension Scheme is ‘Pension Fund Regulatory and Development Authority (PFRDA)’. However, the administration, record-keeping and customer service shall be taken care by the ‘National Securities Depository Limited (NSDL).

The Central Government has introduced the National Pension Scheme for the senior citizens of India by offering pension. This pension is paid from the corpus created by voluntary contributions made by such individuals during the working age of their life. The Central Government has introduced this National Pension Scheme keeping in mind the below given objectives:

  • Provide regular and sustainable income post – retirement
  • Offer reasonable returns on the long-term returns
  • Offer financial security to the senior citizens

The following article will give you in-depth understanding about the National Pension Scheme Tier 1 account. Let us read further to know about this exemplary scheme.

Eligibility Criteria for NPS Tier 1 Account

If a government employee or a private employee wishes to open a Tier 1 Account under the National Pension Scheme, they have to satisfy the following eligibility criteria.

  • Every Indian Citizen, whether resident or non-resident, is eligible to open Tier 1 account under the National Pension Scheme.
  • The age eligibility criteria for an individual to open a Tier 1 account under NPS is to be within the age range of 18 years to 60 years, on the date of submitting the NPS form.

Most prominent features of Tier 1 NPS Account

The scheme offers key features for the Tier 1 account held under the National Pension Scheme.

  • Tier 1 Account opened under the National Pension Scheme is the basic version of the pension account opened under the scheme.
  • Under the tier 1 account, premature withdrawals are allowed as per PFRDA (Exits & Withdrawals under NPS) Regulations 2015
  • The NPS Tier 1 account of government employees invests the collected money predominantly in the bonds held by the government or corporate entities.
  • The corpus collected in the NPS Tier 1 account of the private sector or non-government sector individuals is invested in various investment instruments like bank time deposit scheme, shares, stocks, bonds held by government and corporate entities etc.

  • The government employees need to invest 10% of their basic salary + Dearness Allowance every year under the National Pension Schemes Tier 1 account.

  • Similarly, the Central Government contributes equal amount in the individuals Tier 1 Account.
  • A subscriber is required to contribute a minimum of Rs. 1000 per annum with at least Rs. 500 for every contribution in their NPS Tier 1 account.
  • If you are contributing to the NPS Tier 1 account, then you can withdraw the fund in case of either buying or for the construction of your 1st residential house.
  • The NPS Tier 1 Account offers flexibility to the employee to access the account from any part of the country. The accessibility of the account is irrespective of the location of the employer or job location.
  • All the subscribers of the Tier 1 NPS account during the tenure of their service can maintain the same Tier 1 NPS account, even if they change their job role from being government employee to non-government employee and vice versa.
  • The NPS Tier 1 account number is a 12 digit number called as the Permanent Retirement Account Number (PRAN). Every subscriber is offered with PRAN and in case if the account number is lost or stolen, then it can be reprinted from the authority by paying a nominal fee.
  • Kindly note that subscribers are allowed to hold only ‘ONE’ National Pension Scheme Account .

How to Open an NPS Tier 1 Account?

Following is a detailed process for opening a Tier 1 account under the National Pension Scheme. The National Pension Schemes allows individuals to open account in two ways namely:

  • Online mode (through eNPS)
  • Offline mode (by visiting the nearest Point-Of-Presence – Service Provider)

So, if you wish to open a Tier 1 account follow the below given steps:

Steps to open account under NPS via Online mode

Individuals can open a Tier 1 account under NPS scheme using any ONE of the following options

Registration using Aadhaar Card

  • Individuals can open NPS account using Aadhaar Card Number. Kindly note that your mobile number must be registered with the Aadhaar authority
  • The verification of your KYC shall be done using Aadhaar OTP authentication, and the OTP shall be sent on your registered mobile number
  • Upon successful authentication, fill all the required mandatory details
  • Upload scanned signature and photo to complete the registration process
  • Lastly, you will be routed to the payment gateway to make payment for your NPS account

Registration Using PAN Card where KYC verification is done by partner Banks

  • Citizens holding valid PAN Card can apply for NPS Tier 1 account using their PAN CARD
  • The partner banks shall carryout the KYC verification process
  • Fill all the relevant and required information
  • Upload scanned signature and photograph
  • Lastly, to complete the registration process, you shall be directed to payment gateway where you are required to make payment for your NPS account.

In this manner, individuals can open Tier 1 NPS account via online channel. Following are the steps to open the account via offline channel.

  • Download the PRAN application form from the official website of NPS, alternatively, you can also procure the application form from the Point-of-Presence -Service Provider
  • Duly fill all the required and mandatory details like scheme details, personal details etc.
  • Attach your recent passport size photograph and relevant KYC documents that include valid address proof and identity proof.
  • Once the entire form is duly filled, submit it to the nearest PoP-SP
  • Along with submitting the form with PoP-SP, you are required to make payment of your first contribution towards your Tier 1 NPS account for completing the registration process.

Thus, in this manner, any individual whether government employee or non-government employee can easily apply and register for Tier 1 account of National Pension Scheme.

Documents Required for Opening NPS Tier 1 Account

Following is the list of mandatory documents required for opening NPS Tier 1 Account

  • Duly filled NPS account registration form
  • Valid Address Proof
  • Valid Identity Proof
  • Valid Age Proof
  • Recent Passport Size Photograph

Taxation in the NPS Tier 1 Account

The subscribers of the Tier 1 account under NPS can avail tax benefit as under:

Tax Benefit for Individuals

All salaried individuals who are contributing towards NPS Tier 1 account are eligible to claim tax deduction up to 10% of gross income under Sec 80 CCD (1). This tax deduction is allowed within the entire tax benefit ceiling of Rs. 1.50 lakhs offered u/s 80 CCE.

Tax Benefits for Corporates

Corporate Subscriber - Employer's NPS contribution (for the benefit of employee) up to 10% of salary (Basic + DA), is deductible from taxable income, without any monetary limit.

Corporates - Employer’s Contribution towards NPS up to 10% of salary (Basic + DA) can be deducted as ‘Business Expense’ from their Profit & Loss Account.

Exclusive Additional Tax Benefit to all NPS Subscribers u/s 80CCD (1B)

An additional exclusive tax benefit is offered to all NPS Subscribers u/s 80CCD for investing up to Rs. 50,000 in Tier 1 account of NPS. This tax benefit is offered to the Tier 1 account holders over and above the deduction of Rs. 1.50 lakhs available u/s 80C of the IT Act, 1961.

Kindly note, all the tax benefits offered under the National Pension scheme are applicable to the Tier 1 account holders only.

Return of Investment on NPS Tier 1 Account

The returns of NPS Tier 1 account can be earned by investing the corpus in 4 different classes of NPS assets under the Active Choice. The NPS subscriber can invest its money in 4 different asset classes namely:

  • Equity or E
  • Corporate Debt or C
  • Government Securities or G
  • Alternative Investment Funds or AI

Subscribers of the NPS Tier 1 account can split their corpus in various asset classes as per their convenience and financial goals. The NPS also allows subscribers to choose any one from the 8 available fund managers for overlooking the corpus as pension fund managers. Thus, the returns receivable on the invested corpus depend on the type of asset class selected and the fund manager opted by the subscriber.

FAQ's on National Pension Scheme (NPS) Tier 1

Who can open Tier 1 NPS?

Any citizen of India, whether resident or non-resident, can open Tier 1 account under National Pension Scheme subject to following conditions: Must be aged between 18 years to 60 years on the date of submitting the form with NPS Individuals can open Tier 1 NPS account as an individual subscriber or on employer-employee grounds.

What is the difference between Tier 1 and Tier 2 NPS?

Tier 1 account under NPS scheme is more of retirement corpus building account which restricts the subscriber to withdraw money while tier 2 account under NPS scheme is a voluntary account which allows the subscribers to invest and withdraw money anytime.

Can I withdraw money from NPS Tier 1?

Yes, you can withdraw money from your NPS Tier 1 Account subject to fulfilment of certain terms and conditions.

What is NPS Tier?

The National Pension Scheme is offering various investment opportunities to individuals under its tier 1 and tier 2 accounts. These tier accounts are created to offer varied investment options to the subscribers as per their financial goals.

Can I have more than ONE NPS account?

No, NPS does not allow subscribers to hold multiple accounts. A single individual can hold only one account.

Will the government contribute to NPS scheme?

No, the government shall not contribute any amount to the NPS account.