All about Tier 1 National Pension Scheme Account

Check your Experian Credit Score
It's free!

Get it
now

Get it
now

In order to lend structure to the application of National Pension Scheme (NPS), the government has broken it down into two distinct tiers - Tier 1 and Tier 2. NPS is a government led national pension scheme that aims to fulfill the pension needs of employees from both the public and private sectors. While enrolling in this pension scheme is mandatory for both central and state government employees, employees of the private sector too can enroll for the scheme and reap benefits.

Features of Tier 1 NPS Account

Here are few significant features of Tier 1 NPS Account which differentiate it from the NPS Tier 2 account.

• Tier 1 NPS Account is the most basic form of pension account
• Premature withdrawals from the Tier 1 NPS Account are allowed but only in the form of repayable advance and only if the investor has completed 15 years of service. Such withdrawals are allowed only in case of unforeseen circumstances like critical illness and emergency
• Investors can also partially withdraw up to 50% of the funds in case they have completed 25 years of service
• Tier 1 NPS account for government employees is a scheme that invests mostly in government and corporate bonds
• Tier 1 NPS account for non-government entities invests mostly in a mix of stocks, government and corporate bonds, fixed deposits and liquid funds
• Tier 1 government schemes require you to invest 10% of basic plus dearness allowance to be invested every year. Same amount is contributed by the government
• Tier 1 private sector schemes require you to invest at least 6000 rupees per year with a minimum of 500 rupees per month
• For the purpose of buying or constructing your first house, NPS fund can be withdrawn
• NPS Tier 1 Account has the flexibility of being operated from anywhere in the country irrespective of employer and the location of job
• NPS subscribers can shift from private sector to public and vice versa while maintaining the same NPS account
• Every subscriber of the the NPS Tier 1 Account is assigned a 12 digit Permanent Retirement Account Number (PRAN). In case of lost or stolen PRAN Card, the same can be reprinted by paying a nominal fee
• One NPS Account per individual is allowed

Eligibility Criteria for NPS Tier 1 Account

Following are some of the parameters that need to be considered for individuals to be eligible for the NPS Tier 1 account.

• Any citizen of India, resident or non-resident can join the National Pension System
• Individual needs to be 18-60 years of age on the date of submission of NPS form
• Non Resident Indians are also eligible to register for the NPS scheme

Documents Required for Opening NPS Tier 1 Account

Certain specific documents need to be submitted along with the NPS Account opening form. These are listed below.

• Duly filled registration form
• Identity Proof of applicant
• Address Proof of applicant
• Age or Date of Birth proof of the applicant

Taxation Process of Funds in the NPS Tier 1 Account

There is a lot of discrepancy regarding the taxation rules that apply to NPS Tier 1 Account. However, here is a list of tax benefits that apply to individuals enrolled in the NPS Tier 1 Account.

Tax Rebate for salaried individuals

• Employee’s own contribution is eligible for tax benefit of up to 10% of salary (Basic + DA). This is under section 80CCD of the Income Tax Act and has a limit of Rs. 1 lac per annum.
• Employee is eligible for tax deduction on employer’s contribution amount too. This is 10% of salary (Basic + DA) contributed by employer. It has a limit of Rs.1 lac and is as per section 80CCC of the Income Tax Act.

Tax rebate for self-employed individuals

• Tax rebate for up to 10% of their gross income with a limit of Rs.1 lac per annum. This is in confirmation with section 80CCD of the Income Tax Act.

Withdrawal Process of the NPS Tier 1 Account

There may be situations where a registered individual might want to exit from the NPS tier 1 Account. This can be done by filling up and submitting a withdrawal form. NPS calculator allows an individual to calculate the amount of pension they are likely to receive. Here is a list of documents that are required for the same.

• Original PRAN Card issued by the authority
• Attested copy of Identity Proof of subscriber (e. g. Passport, Aadhar Card, PAN Card, Valid Driving License, Voter ID Card etc.)
• Attested copy of Address Proof of subscriber (e. g. Passport, Aadhar Card, PAN Card, Valid Driving License, Voter ID Card etc.)
• A cancelled cheque carrying details like Subscriber Name, Bank Account Number and IFSC Code