National Pension Scheme (NPS) Tier 1: Contribution, Returns & Withdrawal

National Pension Scheme (NPS) Tier 1: Contribution, Returns & Withdrawal
NPS Tier 1 is a retirement account. It is the primary NPS account and you can only open a Tier 2 account after opening a Tier 1 account. The account can be opened under the NPS (Central Govt), NPS (State Govt), NPS (Corporate) and NPS (All Citizens Models). Different rules apply to each, but the general rules stated below apply to all types of NPS Tier 1 accounts.

You need to deposit at least Rs 1,000 per annum to keep the account active. The NPS Tier 1 account matures at the age of 60 and you can extend it till the age of 70.

NPS Tier 1 is eligible for tax deduction on contributions up to Rs 1.5 lakh under Section 80 C and an additional Rs 50,000 under Section 80 CCD (1B) of the Income Tax Act, 1961. On withdrawal, 40% of the NPS Tier 1 account balance can be withdrawn tax-free. Another 40% must be compulsorily used to buy an annuity (monthly pension). The remaining 20% can either be used to buy an annuity or can be withdrawn after paying tax (at your slab rate).

Eligibility:

1.You have to be a citizen of India. NRIs can also open it as long as they are Indian citizens.

2. You have to be between 18 and 65 years of age. Special rules apply if you open an NPS Tier 1 account from the age of 60 – 65.

Minimum Investment: Rs 1,000 per annum

Maximum Investment: No upper limit

Lock-in: Till you attain the age of 60

Returns: Depend on the asset allocation and pension funds chosen by you.

NPS Tier 1 Contribution

The minimum NPS Tier 1 contribution is Rs 1,000 per annum. There is no maximum limit on your NPS Tier 1 contribution. The minimum initial contribution to the NPS Tier 1 Account is Rs 500.

You can contribute online to NPS Tier 1 at enps.nsdl.com

NPS Tier 1 withdrawal rules

You can make up to 3 partial withdrawals from NPS Tier 1 during the lifetime of your NPS account. Such withdrawals can be made 3 years after opening the account.

• They can be made on specific grounds such as medical treatment, higher education of children, marriage of children, home purchase etc.
• These withdrawals cannot in aggregate exceed 25% of your contributions and are tax-free.
• The NPS account matures at the age of 60 and you can withdraw up to 60% of your NPS corpus tax-free. The balance 40% has to be used to buy an annuity (regular pension). The annuity will be taxable each year.
You can also opt for premature exit before the age of 60, provided you have completed 3 years in the NPS. In such a scenario, you can withdraw a maximum of 20% of your corpus which will be a taxable withdrawal. The balance 80% has to be converted to an annuity.

NPS Tier 1 Lock-in Period

The NPS Tier 1 account has a lock-in till the age of 60. However as mentioned above, you can exit the system prematurely before 60 subject to the terms and conditions mentioned above.

NPS Tier 1 Tax Benefits

You get a tax deduction under Section 80CCD(1) and 80CCD(2) on contributions to the NPS up to Rs 1.5 lakh per annum.
• For employees the maximum contribution eligible for tax deduction under these sections is limited to 20% of salary.
• For self-employed, the maximum contribution eligible for tax deduction under these sections is limited to 20% of income.
• In addition you can get a tax deduction on contributions up to Rs 50,000 under Section 80CCD(1B). Hence the total tax benefit on contributions to the NPS is Rs 2 lakh per annum.
• In addition, the returns on NPS are tax exempt while the money is retained in the NPS account.
• On maturity, up to 60% of the accumulated NPS corpus can be withdrawn free of tax. Another 40% must be used to buy an annuity (regular pension).

How to withdraw money from NPS Tier 1

You can log in to your NPS Tier 1 account from enps.nsdl.com. You need to provide your PRAN number and date of birth in order to login. You can make withdrawals online after logging into your account.
Alternatively you can go to the nearest branch of your NPS point-of-presence (PoP), usually your bank and submit a withdrawal request there.

How to close an NPS Tier 1 Account

You can submit a request you close your NPS Tier 1 account by logging into your account online at enps.nsdl.com.
Alternatively you can go to the nearest branch of your NPS point-of-presence (PoP), usually your bank and submit a closure request there.

Tier 1 Returns

NPS Tier 1 returns are derived by investing in equities, corporate bonds, government bonds  and alternative assets – the four NPS asset classes. You can decide the split between these assets as per your convenience subject to a limit of 75% on equity investment and 5% on alternative assets*. You can decide You can also select 1 of 8 NPS pension fund managers. They are SBI, UTI, LIC, Aditya Birla, HDFC, Kotak, ICICI Prudential and Reliance Capital. NPS returns are thus akin to mutual fund returns rather than the fixed returns offered by savings schemes like PPF. You can view the historic returns of NPS Pension Funds below:
Tax Benefits under NPS

1. What are the tax benefits under NPS?

Tax Benefit available to Individual:
Any individual who is Subscriber of NPS can claim tax benefit under Sec 80 CCD (1) with in the overall ceiling of Rs. 1.5 lac under Sec 80 CCE.

Exclusive Tax Benefit to all NPS Subscribers u/s 80CCD (1B)
An additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs. 1.5 lakh available under section 80C of Income Tax Act. 1961.

Tax Benefits under the Corporate Sector:

1. Corporate Subscriber:
   Additional Tax Benefit is available to Subscribers under Corporate Sector, u/s 80CCD (2) of Income Tax Act. 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.
2. Corporates
   Employer’s Contribution towards NPS up to 10% of salary (Basic + DA) can be deducted as ‘Business Expense’ from their Profit & Loss Account.

How to make the Investment to avail the Tax Benefit:
If you are an existing Subscriber, you can approach any POP-SP or alternatively you can visit eNPS website (https://enps.nsdl.com) for making additional contribution in your Tier I account.
Please note: Tax benefits are applicable for investments in Tier I account only.

2. What will be the investment proof to avail the tax benefit under NPS?

3. What are other tax benefits under NPS apart from available u/s 80CCD?

4. What are the tax benefits on investments under Tier II account