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. These changes have not yet been officially notified.
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, Relaince 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.
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.
3.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 enps.karvy.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 enps.karvy.com.