What are the types of NPS account?
NPS accounts are structured as Tier I and Tier II based on the withdrawal norms.
NPS- Tier I Account
This type of account is a pension account and is mandatory. It is a non-withdrawal retirement savings account. It is the basic NPS account which does not allow premature withdrawals unless the member has completed 15 years. These withdrawals are repayable advances and are allowed only in case of an emergency. However, Tier 1 account holders are eligible for partial withdrawals after 25 years. Tier I accounts of government employees are subjected to investments in government and corporate bonds, while that of other citizens are invested in Fixed Deposits and liquid funds as well.
NPS- Tier II Account
This types of account is a savings account and is optional. Subscribers can withdraw savings from this account at any time. There are no tax benefits available on this account. Funds can be transferred to the Tier I account from Tier II account. No additional yearly account maintenance charges will be levied. No minimum balance required. Flexible withdrawal facility is available. NRIs cannot open Tier II accounts. Once the Tier I account is closed, the Tier II account will also be closed.
Tier II NPS accounts were launched by the government in the year 2009 and it offers greater flexibility than Tier I accounts. Here the account holders can withdraw their amount without any withdrawal charges or penalty. Tier II offers the investor an option to invest either in government bonds, fixed income instruments, or equity funds. Unlike Tier I accounts, NPS Tier II accounts does not have lock-in periods and are not exempted from tax under section 80 C of Income Tax Act.
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