NPS Tier II Account- Contribution, Returns & Withdrawal

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National Pension System (NPS) is a government-sponsored retirement savings plan in India, designed to help citizens build a retirement corpus over time. It is accessible to all Indian citizens and allows individuals to make small contributions towards their retirement corpus that grow in value through compounded returns.

There are two types of NPS Accounts. While the NPS Tier I Account is the primary retirement savings vehicle, the NPS Tier II Account offers greater flexibility. The Tier II Account functions as a voluntary investment account with no withdrawal restrictions, providing an excellent option for those seeking liquidity along with long-term investment.

Let us explore the NPS Tier II Account in detail.

What is an NPS Tier II Account?

An NPS Tier II Account is a flexible investment option available under the National Pension System (NPS), which can be opened only if the customer has an NPS Tier II Account. While the Tier I Account is mandatory for NPS subscribers and focuses on long-term retirement savings with withdrawal restrictions, the Tier II Account is voluntary and offers greater flexibility.

Investments in a Tier II Account are similar to investments in Mutual Funds, allowing individuals to choose from various classes of Funds, including equity, government securities and corporate bonds. Notably, up to 50% of the investments can be allocated to Equity Funds. There’s no lock-in period, meaning account holders can withdraw their investments anytime. If an investor does not select a specific Fund type, the investments are automatically allocated based on their age and risk tolerance.

Benefits of an NPS Tier II Account

An NPS Tier II Account offers several benefits, including:

Investment Flexibility

The NPS Tier II Account provides ample flexibility for individuals to choose from various registered Investment and Pension Fund options. Individuals can shift between different investment options according to their risk tolerance and financial goals.

Withdrawal Flexibility

The key benefit of an NPS Tier II Account is its withdrawal flexibility. Unlike Tier I Accounts, there is no lock-in period, which means you can withdraw your money whenever needed. This feature makes the Tier II Account an attractive option for those seeking liquidity.

 Suitable Returns

NPS Tier II Accounts are designed to provide returns that suit various risk appetites. They balance risk and reward with a mix of equity and debt investments. The flexibility to choose your investment allocation ensures that your portfolio aligns with your financial objectives and risk tolerance.

Tax Advantages

While NPS Tier II Accounts generally do not offer tax benefits like Tier I Accounts, certain exceptions apply for government employees. Under Section 80C of the Income Tax Act, contributions by central government employees to Tier II Accounts are eligible for tax deductions. This makes it a valuable tool for tax planning.

Reputed Fund Managers

NPS Tier II Accounts are managed by reputable Fund Managers, ensuring professional handling of your investments. These experts strategically allocate your investment across various asset classes, maximising returns while minimising risk. With their extensive experience and track record, you can trust that your investments are in capable hands.

Wide Coverage

NPS Tier II Accounts offer wide coverage across multiple asset classes, including equities, corporate bonds and government securities. This broad diversification helps spread risk and enhances the potential for stable returns. Whether you're a conservative or aggressive investor, the NPS Tier II Account can cater to your financial goals.

Eligibility to open an NPS Tier II Account

    Applicant should be self-employed or salaried

• Any individual aged between 18-70 years, including OCIs and NRIs (except for HUFs and PIO cardholders)
• Applicants must have fulfilled KYC requirements
• Applicants should have an active NPS Tier I Account.

How to Open NPS Tier II Account?

You have the option to open an NPS Tier II account for additional savings flexibility. However, it is mandatory to have an active NPS Tier I account to get started. You can opt to register for a NPS tier II account easily as below:

1. Log in through ICICI Bank’s portal or visit a branch.
2. Fill out the Tier II activation form and submit the documents.
3. Make your first contribution to activate it.
4.  Enjoy flexible investing and withdrawals anytime.

Investment in NPS Tier II Account

Investments in a Tier II Account can be made online without any paperwork. This voluntary Account allows you to invest in Funds that invest in bonds, government securities and equities. Account holders are also free to select the proportion of their investment to the various asset classes. Otherwise, they can opt for the auto option, where professional Fund Managers will decide the asset allocation based on the account holder’s age and risk tolerance.

Withdrawal and closure of NPS Tier II Account

Withdrawal from a Tier II NPS Account is highly flexible, with no lock-in period or exit restrictions, allowing you to withdraw funds anytime. You can make partial or full withdrawals without any penalties.

To close the Account, simply submit a closure request by visiting any ICICI Bank Branch. The remaining balance will be transferred to your linked bank account, making it a convenient option for liquidity along with long-term investments.

You can also withdraw or close your NPS Tier II Account online, by logging into the NSDL portal. After logging in, go to: Transact Online > Withdrawal > Withdrawal from Tier II and follow the instructions.

FAQs

1.  What is the main advantage of the NPS Tier II Account?

The main advantage of the NPS Tier II Account is that it allows flexible withdrawals.

2. Is the NPS Tier II Account taxable?

Yes, the returns from the NPS Tier II Account are taxable. Also, contributions made to this Account are not eligible for any tax deductions.

3. Which one is preferable, NPS Tier I or Tier II?

An NPS Tier I Account is ideal for long-term savings with tax savings because of provisions of Sections 80CCD(1) and 80C of the Income Tax Act. On the other hand, the Tier II Account offers plenty of flexibility to the account holder but does not have the tax benefits.

T&C apply

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