RESUME APPLICATION PAY PREMIUM
Fund Performance

Fund Performance

Knowledge Center

Knowledge Center

About Us

About Us

Tools and Calculators

Tools & Calculators

Quick links

Mobile (Download app)
  • Webpages
  • Documents
  • HDFC Life ClassicAssure PlusInvestment
  • HDFC Life ClassicAssure PlusInvestment
  • HDFC Life ClassicAssure PlusInvestment

For NRI Customers

(To Buy a Policy)

(If you're our existing customer)

For Online Policy Purchase

(New and Ongoing Applications)

Branch Locator

For Existing Customers

(Issued Policy)

Fund Performance Check

RESUME APPLICATION PAY PREMIUM

What do you want to do?

Quick links

Mobile (Download app)

Download HDFC Life App

Buy plans, track your policy, make renewal payments & monitor fund performance with HDFC Life App, Download Now!

Apple Logo Go to Google Play Store

Understand NPS tier 2 Vs tier 1 accounts

down-arrow
Understand NPS tier 2 Vs tier 1 accounts
December 27, 2018
In India, the outreach and the general awareness about financial planning and future security is a subject that is picking up its momentum. However, a lot of ground yet remains to be covered and gradually things are shaping up. Among the core areas of financial inclusion, retirement planning and building up funds for the later years in life is a matter that is very important for everyone.

After all, in the absence of a regular paycheck every month and the bills coming in, everyone needs a solid financial framework for financial strength. With this view, government of India launched the National Pension Scheme in 2004. Originally, it was meant exclusively for government employees but its framework was later expanded to include employees of all the sectors - organized as well as unorganized.

What is NPS?

NPS is basically an annuity product that is meant to serve as a retirement fund, after an employee retires from active service. Unlike EPF (Employees Provident Fund), contributions towards NPS are not mandatory and are voluntary in nature.

Any citizen of India, in the age group of 18 to 65 years can avail of this scheme and the whole scheme is governed and regulated by the PFRDA (Pension Fund Regulatory and Development Authority), under the aegis of the government of India.

The NPS offers government bonds, corporate and equity related options as the main fund driving instruments and is structured in two mechanisms or tiers, which are referred to as tier 1 and tier 2.

 

Tier I Account

Tier II Account

Who Is Eligible?

All Indian citizens between the ages of 18 and 65

Any Indian citizen with an active Tier I account

Minimum Contribution Required to Open Account

INR 500

INR 1,000

Minimum Annual Contribution Required

At least one contribution of INR 1,000 is required each year.

It is not mandatory to make a contribution every year.

Are Contributions Exempt from Tax?

Contributions up to INR 1,50,000per year qualify for deductions under Section 80C of the Income Tax Act.

Further deductions of INR 50,000 can be availed under Section 80CCD(1B).

No, contributions made to Tier II accounts are not exempt from tax.

Rules on Withdrawals

No withdrawals can be made for the first three years.

After that, up to 25% of the fund value can be withdrawn, but only for specific purposes.

Once the account holder reaches the age of 60, 60% of the fund value can be withdrawn and the balance amount is used to purchase an annuity.

There are flexible

withdrawal and exit rules.

Withdrawals can be made at any time.

Taxes on Withdrawals

60% of the corpus, which is what can be withdrawn at maturity, is exempt from taxes.

The withdrawn amounts are added to the account holder's income, which is taxed as per the current income tax slab rates.

Fund Management Charges

The fund management charge, known as the Investment Management Fee, is 0.01% for both Tier I and Tier II accounts.

Availability of Asset Classes

The following asset classes are available to both Tier I and Tier II account holders:

  • Equity (E)

  • Corporate Debt (C)

  • Government Securities (G)

  • Alternative Investment Funds (A)

 

A subscriber whose tier 1 account is set up can then set up her/his tier 2 account. An NPS tier 2 account basically serves like a regular bank savings account from which regular transactions in the form of deposits and withdrawals can be made. Therefore, a tier 2 account functions like an  investment option  and is not subject to the mandatory withdrawal rules like a tier 1 account.

ARN:ED/08/20/20354

 

Plan Your Retirement Now

Show Full Article
Hide Full Article

Term Plan Articles Term Plan Articles

Investment Articles Investment Articles

Savings Articles Savings Articles

Life Insurance Articles Life Insurance Articles

Tax Articles Tax Articles

Retirement Articles Retirement Articles

ULIP Articles ULIP Articles

Health Plans Articles Health Plans Articles

Child Plans Articles Child Plans Articles

Popular Calculators Popular Calculators

Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

LinkedIn profile
Author Profile Written By:
Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

LinkedIn profile
Reviewed By Reviewed By:

Here's all you should know about life insurance.

We help you to make informed insurance decisions for a lifetime.

What is Family Pension?

What is Family Pension?

What is Family Pension? Explore its eligibility, benefits for government employees, retirees, widows, and tax implications. Understand the differences between regular pension and family pension.

Income Tax on Pensions: Are They Taxable?

Voluntary Retirement Scheme

Pension Payment Order: Definition, Steps, Importance

Pension Payment Order, abbreviated as PPO, is a unique 12-digit code assigned to every pensioner under the Employee Provident Fund (EPF). Read to know how to check it.

Pension Payment Order: Definition, Steps, Importance
Top 10 Features of an Ideal Pension Plan Previous
Regular Annuity vs Lump Sum - Which Should You Choose? Next
HDFC life
HDFC life

HDFC Life

Reviewed by Life Insurance Experts

HDFC LIFE IS A TRUSTED LIFE INSURANCE PARTNER

We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.

Popular Search

Popular Searches