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NPS Tier 2 is a non-retirement NPS account. Private sector employees and self-employed persons can invest in it on any business day and withdraw their money on any business day without stiff exit penalties or lock-in.
For Government employees, in a press conference held on 10th December 2018, Finance Minister Aun Jaitley announced that the NPS Tier 2 Account will be eligible for tax deduction under Section 80C up to Rs 1.5 lakh per annum. The account would also have a lock-in of 3 years.
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.
- NPS Tier 1 account can be opened under the NPS (Central Govt), NPS (State Govt), NPS (Corporate) and NPS (All Citizens Models). All subscribers to NPS Tier 2 have the freedom to select any fund manager within the NPS.
- Currently there are 8 fund managers in the NPS including SBI, UTI, LIC, HDFC, ICICI, Kotak, Reliance and Aditya Birla Sun Life Pension Fund.
- There is no minimum balance requirement or minimum annual contribution for an NPS Tier 2 account.
- There was previously a minimum balance requirement of Rs 2,000 at the end of each financial year, but this was removed by the PFRDA in 2016. However if you do contribute, the minimum amount you can put in is Rs 250.
Eligibility
- You have to be a citizen of India. NRIs can also open it as long as they are Indian citizens.
- 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.
- You need to have an active Tier 1 account. However you can simultaneously open a Tier 1 and Tier 2 account.
Minimum Investment: None
Maximum Investment: No upper limit
Lock-in: 3 years (For Government Employees). No lock-in for private sector employees.
Returns: Depends on the asset allocation and pension funds chosen by you.
Tax on NPS Tier 2
NPS Tier 2 is eligible for tax deduction under Section 80C for government employees. There is no clarity on how the gains in NPS Tier 2 will be taxed for such employees. The Tier 2 account would also have a lock-in of 3 years. However these tax rules have not yet been notified by the Government.
There is no tax deduction on NPS Tier 2 for private sector employees and the gains in the NPS Tier 2 are also taxable at slab rate.
How to open an NPS Tier 2 Account
If you have an Aadhar Card, PAN Card and bank account, you can open an NPS account online at enps.nsdl.com or nps.kfintech.com. These are the portals of the Central Recordkeeping Agencies (CRAs) in the NPS.
- If you prefer to do this offline (in person) you can go to your nearest NPS Point-of-Presence (PoP) which is typically a designated branch of your bank. You can get a full list of NPS PoPs here.
- In either case (online or offline account opening), you can make contributions, change key details, change fund managers and initiate withdrawals online at enps.nsdl.com or nps.kfintech.com.
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NPS Tier 2 Contribution
There is no minimum annual contribution to NPS Tier 2 and no maximum annual contribution. The minimum initial contribution is Rs 1,000. You can contribute online to NPS Tier 2 at enps.nsdl.com
NPS Tier 2 Withdrawal Rules
There is no lock-in for NPS Tier 2. You can withdraw at any time from the NPS Tier 2 account. However, there is a lock-in of 3 years for government employees who are investing in NPS Tier 2 to avail of a tax deduction. This new provision for government employees was announced in a press conference in December 2018 but has not yet been implemented.
NPS Tier 2 lock-in period
There is no lock-in period for NPS tier 2. However Government employees investing in NPS Tier 2 will have a lock-in of 3 years, if they are availing tax benefits on their investment.
NPS Tier 2 tax benefits
NPS Tier 2 does not have any tax benefits. The returns on NPS Tier 2 are also taxable. However there will be a tax deduction for government employees under Section 80C for investment in NPS Tier 2.
How to withdraw money from NPS Tier 2
You can withdraw money from NPS Tier 2 by logging into your account online at enps.nsdl.org
How to close an NPS Tier 2 account
You can submit a request to close your NPS Tier 2 account by logging into your NPS account online through enps.nsdl.org. Alternatively you can close your NPS Tier 2 account by submitting an account closure form to your nearest NPS Point-of-Presence, typically your bank.
Returns on NPS Tier 2
NPS Tier 2 does not have a fixed rate of interest. It gives returns by investing your money in the 4 NPS asset classes – equities, corporate bonds, government bonds and alternative assets. You can decide your split between these assets subject to certain limits – 75% on equities and 5% on alternative assets. You also get a choice of 8 NPS fund managers and you can change your selection once a year. Historically, an NPS portfolio with at least a 50% equity allocation has given returns of 10-12%.
Returns of NPS Tier 2 (Equity) as on September 30, 2019
| Pension Fund | 1 Year Return | 3 Year Return | 5 Year Return | Returns since Inception |
| BIRLA PF | 4.51% | NA | NA | 8.47% |
| HDFC PF | 6.81% | 10.99% | 9.28% | 11.24% |
| ICICI PF | 4.33% | 9.34% | 8.04% | 9.02% |
| KOTAK PF | 7.15% | 9.83% | 8.52% | 9.55% |
| LIC PF | 2.81% | 7.48% | 6.64% | 7.74% |
| SBI PF | 3.93% | 9.19% | 8.19% | 8.99% |
| UTI PF | 4.37% | 10.07% | 8.63% | 9.35% |
| Average | 4.84% | 8.12% | 7.04% | 9.19% |
Returns of NPS Tier 2 (Corporate Bonds) as on September 30, 2019
| Pension Fund | 1 Year Return | 3 Year Return | 5 Year Return | Returns since Inception |
| BIRLA PF | 13.78% | NA | NA | 8.35% |
| HDFC PF | 14.61% | 8.13% | 9.39% | 9.37% |
| ICICI PF | 14.08% | 8.04% | 10.22% | 10.41% |
| KOTAK PF | 13.77% | 7.61% | 9.68% | 9.34% |
| LIC PF | 14.11% | 7.17% | 9.22% | 9.02% |
| SBI PF | 13.39% | 7.68% | 9.77% | 10.13% |
| UTI PF | 12.80% | 7.34% | 9.44% | 9.40% |
| Average | 13.79% | 6.56% | 8.24% | 9.43% |
Returns of NPS Tier 2 (Government Bonds) as on September 30, 2019
| Pension Fund | 1 Year Return | 3 Year Return | 5 Year Return | Returns since Inception |
| BIRLA PF | 18.46% | NA | NA | 7.52% |
| HDFC PF | 18.70% | 7.70% | 10.59% | 10.75% |
| ICICI PF | 17.76% | 7.54% | 10.66% | 9.23% |
| KOTAK PF | 17.67% | 7.49% | 10.56% | 8.84% |
| LIC PF | 22.75% | 10.07% | 11.89% | 12.15% |
| SBI PF | 18.12% | 7.78% | 10.82% | 10.02% |
| UTI PF | 18.37% | 7.52% | 10.51% | 9.65% |
| Average | 18.83% | 6.87% | 9.29% | 9.73% |