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National Pension Scheme (NPS) Tier 2

The National Pension Scheme is a pension scheme introduced by the Government of India in order to offer financial security to senior citizens during their post-retirement phase. Customers have the option to choose the type of investment fund they wish to use for their corpus creation. So, the amount collected for the purpose of the pension corpus, is invested as per the choice of the subscriber.

The National Pension Scheme offers an effective way to plan and save for your retirement through safe and regulated market investment instruments. The National Pension Scheme is regulated by the ‘Pension Fund regulatory and Development authority (PFRDA)’, and the ‘National Pension System Trust’ is responsible to establish PFRDA. The features and benefits of the National Pension Scheme are extended to all the residents of India, whether resident or non-resident. The features are not applicable and extended to employees of armed forces.

Let us understand the features, benefits and eligibility criteria of National Pension Scheme’s Tier 2 account.

Features of Tier 2 NPS Account

The features of Tier 2 account under National Pension Scheme are different from the features of Tier 1 account. Following are the key features of Tier 2 account opened under the National Pension Scheme:

  • The Tier 2 account under the NPS is a voluntary account while the Tier 1 account is the default account under the NPS. Thus, it is mandatory to mention on the registration form if any subscriber wishes to open a Tier 2 account in order to invest in NPS.
  • All the subscribers of the NPS account who have already registered and have a Tier 1 account under NPS can easily open a Tier 2 account under the National Pension Scheme.
  • Only the subscriber holding a valid bank account can open a Tier 2 account under National Pension Scheme.
  • A subscriber needs to invest an initial contribution of minimum Rs. 1000 at the time of registering to Tier 2 account under NPS.
  • Subsequent to the initial registration amount, the subscriber needs to make at least one contribution towards the NPS Tier 2 account.
  • The minimum amount per contribution, subsequent to the initial contribution, is Rs. 250 only.
  • There is no need to maintain a minimum balance in the Tier 2 account under NPS.
  • Subscribers who hold both accounts under NPS i.e. Tier 1 and Tier 2 and can easily transfer funds from Tier 2 account to Tier 1 account.
  • The Tier 2 account offers the subscribers with a separate nomination facility.

Difference of Tier 2 accounts from Tier 1

  • Tax Benefits: Tier 2 account under the NPS scheme does not offer tax benefits to the subscriber as it is voluntary account.
  • The subscriber of Tier 2 accounts are not required to pay any additional annual maintenance charge.
  • Withdrawal of the funds is possible at any point of time from Tier 2 accounts unlike Tier 1 accounts.
  • With Tier 2 account, the subscribers can choose different investment pattern from the one that is existing on the Tier 1 account.

How to Open an NPS Tier 2 Account?

Any individual can open an account under the NPS through authorized entities in the following two manners:

Offline Channel

The offline channel refers to opening the Tier 2 account with the help of partner entities. The following partner entities will help subscribers open a Tier 2 account under NPS.

The partner entities of offline channel under the NPS are:

  • Point-of-Presence (POP’s) and
  • Partner banks which include both private sector banks and public sector banks.
  • Both these entities are authorized entities who are responsible to enrol individuals under the National Pension Scheme. These authorized partners act as enrolment centres called as Point of Presence (POP) under the National Pension Scheme. Under the offline channel, if any individual wishes to invest in National Pension Scheme, then they are required to open a NPS account through the nearest Point of Presence (POP). The Point of Presence centre or banks shall assist the individuals in opening the NPS account.

POPs and banks are facilitators for individuals who wish to invest under NPS. The POPs and Banks help subscribers by providing necessary forms required for opening the account. Similarly, they provide necessary help required for filling up of forms, providing in-depth information related to NPS account and any other relevant information related to the same.

  • Subscribers can also download the relevant form from the official website of NPS and submit the duly filled application form along with required relevant KYC documents at the POPs or Banks.
  • Banks upon receipt of account opening form from individuals or POPs shall verify the KYC documents and expedite the process of opening the Tier 2 account under the National Pension Scheme.

Online Channel

The online channel refers to submitting the documents online through ‘e-NPS’ portal. Kindly note, Tier 2 account can be opened by subscribers who are holding a valid NPS Tier 1 account. So, the subscribers who wish to open a Tier 2 account along with Tier 1 account can do so by following the steps for opening Tier 1 account.

Following are the steps that will help any individual to open a Tier 1 account with NPS.

A subscriber can register to the NPS account in two ways namely:

  • Registration using Aadhaar Card: In case of registrations using Aadhaar Card, individuals first need to authenticate their KYC through OTP (sent on their mobile number registered with Aadhaar) and all the details and photo shall be fetched and populated on the online application form. The individuals need to fill the remaining mandatory details and sign the form by uploading the scanned copy of their signature. Once the entire form is filled the registration process shall take you to payment gateway where the individual needs to make payment towards their NPS account using Debit / Credit Card or Internet Banking. In this manner, individuals can open Tier 1 account using Aadhaar Card.
  • Registration using Pan Card: Another way of registering to the Tier 1 account is by using Pan Card details. Under this method, the KYC verification shall be done by partner banks.
  • In this manner, an individual shall open their Tier 1 account with NPS. Individuals can open their NPS Tier 2 account either along with opening of Tier 1 account or they can open it separately. Following are the steps to open Tier 2 account under NPS
  • Visit the official website of e-NPS by clicking on the given link enps.nsdl.com/eNPS/NationalPensionSystem.html
  • Click on “National Pension System” tab
  • Upon clicking the ‘NPS’ tab, a pop-up window shall display 3 options namely: ‘Registration’, ‘Contribution’ and ‘Tier II Activation’ tab
  • Click on the ‘Tier II Activation’ Tab
  • The next window shall ask the subscriber to enter certain mandatory details like: Permanent Retirement Account Number, Date of Birth, Permanent Account Number, Captcha.
  • Once all the mandatory details are filled, click on ‘Verify PRAN’ tab
  • Once the PRAN details are verified, subscribers of Tier II account shall get activated. Thus, in this manner any subscriber who is holding an active NPS Tier 1 Account can easily and successfully open his/her Tier 2 NPS account.

Documents Required for Opening NPS Tier 2 Account

The key criteria for opening a Tier 2 account under National Pension Scheme is that the subscriber must hold a valid and active Tier 1 account under the scheme. So, all the subscribers who have an active Tier 1 account are eligible to open Tier 2 account under the National Pension Scheme. Therefore, the documents required for opening Tier 2 account under NPS are the documents that were submitted for opening Tier 1 account. Following is the list of documents required for opening Tier 1 account under NPS.

  • Completely filled registration form
  • Applicant’s Copy of Identity Proof
  • Applicant’s copy of Address Proof
  • Applicant’s Age proof or Date of Birth proof

Once these documents are submitted along with initial registration fees, the PFRDA shall open Tier 1 account and allocate a 12 digit account number called as PRAN. Thus, PRAN Card is a sufficient document for opening Tier 2 account under the National Pension Scheme.

Taxation in the NPS Tier 2 Account

The subscribers of Tier 2 account cannot avail any tax benefit for their Tier 2 account under NPS. Unlike Tier 1 account, where there are numerous tax benefits available to the subscriber, the NPS Tier 2 account does not offer any tax benefit to the subscribers under the Income Tax Act, 1961.

Thus, no investments done under the NPS Tier 2 account qualify for tax benefit u/s 80C of the Income Tax Act, 1961. This is because the nature of the Tier 2 account is voluntary.

Also, there is no lock-in period associated with the investments done in NPS Tier 2 account. This is because only investments that are eligible for an Income Tax Deduction U/S 80C have a lock-in period of 3 years. So, NPS Tier 2 accounts do not have a lock in period. However, all the withdrawals done from the Tier 2 account are subject to income tax as per the tax slab at the time of withdrawal. Let us understand this with an example.

If the withdrawal from the Tier 2 account is made within 1 year of investment, then such withdrawal shall attract short-term capital gain tax. However, if the withdrawal was done after completion of 1 year from the date of investment, it would have attracted long-term capital gain tax only.

NPS Tier 2 Withdrawal Rules & Returns

There are no rules pertaining to withdrawal of funds from Tier 2 account as it is a voluntary saving account. So, subscribers can withdraw the funds at any given point from their NPS Tier 2 account as per their choice.

Returns on NPS Tier 2 account

The returns earned on NPS Tier 2 account are not fixed as the investment is done into various market related instruments. The investment of the subscribers’ corpus is done in 4 varied asset classes under active choice namely:

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

The returns are earned as per the investment portfolio decided by the subscriber as the subscriber can choose and decide the splitting of funds within various asset classes. The subscribers can also choose the fund manger for their NPS Tier 2 account. Subscribers can change their designated fund manager once a year if they are unsatisfied by the performance of the fund manager.

FAQ's on National Pension Scheme (NPS) Tier 2

Who can open Tier 2 NPS?

The subscribers who have an active Tier 1 account under the NPS can open a Tier 2 account. Following are the terms and conditions for opening a Tier 2 NPS account

The account can be opened by any resident Indian and NRI

Subscribers can open Tier 2 account simultaneously with Tier 1 account

All the government employees who hold an active Tier 1 Account under NPS can open Tier 2 account.

However, OCI (Overseas Citizens of India) and PIO (Person of Indian Origin) card holders and HUFs are not eligible for opening of NPS account.

Can I withdraw money from NPS Tier 2?

Yes, Tier 2 account under the Nations Pension Scheme is a voluntary account, and hence, subscribers can withdraw money at any point of time.

Can I appoint nominee for my NPS Tier 2 account?

Yes, subscribers are required to appoint a nominee for their NPS Tier 2 account at the time of opening the account.

How many nominee/ nominees can I appoint for my NPS Tier 2 account?

A subscriber can appoint a maximum of 3 nominees for their NPS Tier 2 account. If any subscriber provides more than 1 nominee, then the subscriber is required to specify the percentage of their corpus which they wish to allocate to each of their nominee. The total percentage of share allocated across all the nominees must aggregate to 100%.

What is the minimum contribution amount required towards Tier 2 account?

The minimum contribution amount required for opening the account is Rs. 1000, while the subsequent minimum contribution amount is Rs. 250.