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The Indian Government launched the National Pension System (NPS) in 2004 to help citizens plan their retirement and secure their financial future efficiently. <\/p>\n\n\n\n
Individuals can open two types of accounts under the National Pension Scheme: Tier 1 vs Tier 2. Both these accounts are meant to help foster a habit of saving in Indian citizens. <\/p>\n\n\n\n
If you\u2019re wondering what is Tier 1 and Tier 2 in NPS, the difference between the two and NPS Tier 1 and Tier 2 tax benefits, you\u2019re in the right place. <\/p>\n\n\n\n
Here, we discuss both these NPS accounts, exploring what sets them apart.<\/p>\n\n\n\n
<\/p>\n\n\n\n Between NPS Tier 1 vs Tier 2, only Tier 1 attracts tax benefits. Here are the details of the tax benefits under the Income Tax Act 1961:<\/p>\n\n\n\n The maximum tax deduction under this section is Rs 1.5 Lakh. <\/p>\n\n\n\n Under this section, you can claim an additional tax deduction of up to Rs 50,000. And so you can essentially claim a tax deduction of Rs 2 Lakh (Rs 1.5 Lakh + Rs 50,0000) in total.<\/p>\n\n\n\n This section applies only if contributions have been made by an employer. Hence, it doesn\u2019t apply to self-employed individuals and is limited to salaried professionals. <\/p>\n\n\n\n At the end of the day, you cannot have a Tier 2 account without having a Tier 1 account, making the debate- Tier 1 vs Tier 2 virtually redundant. Further, both these accounts serve different purposes. And so, its best to have both active for comprehensive retirement and financial future planning.<\/p>\n\n\n\n If you\u2019re looking for a reliable platform to manage your investments, explore Tata Capital Moneyfy. Discover and invest in top-performing mutual funds, insurance options, and even loans\u2014all from the palm of your hand!<\/p>\n\n\n\n Make your savings work as hard as you do and watch them grow into a comfortable nest egg with Tata Capital Moneyfy.To learn more, download the Tata Moneyfy’s mutual fund App<\/a> today!<\/p>\n\n\n\nBasis<\/strong><\/td> Tier 1<\/strong><\/td> Tier 2<\/strong><\/td><\/tr> Account Type<\/td> Primary account for employees working in government or private sectors<\/td> Voluntary account that can be opened by individuals with a Tier 1 account<\/td><\/tr> Purpose<\/td> Part of a retirement savings plan<\/td> Part of a regular investment plan<\/td><\/tr> Eligibility<\/td> Resident, non-resident or Overseas Indian citizens between the ages of 18 and 70 are eligible<\/td> Individuals must have a Tier 1 account<\/td><\/tr> Lock-in Period<\/td> Until the account holder attains 60 years of age<\/td> Funds can be withdrawn at any time<\/td><\/tr> Minimum Contribution<\/td> Rs 500 <\/td> Rs 1,000<\/td><\/tr> Maturity of the Scheme<\/td> Individual attains the age of 60 years (60% of the corpus is paid in lumpsum, 40% can be utilised to acquire an annuity plan)<\/td> Not applicable<\/td><\/tr> Investment Choice<\/td> Auto and active choice<\/td> Active choice<\/td><\/tr> Annuity<\/td> Once the individual attains the age of 60, 40% of the sum must be used to acquire an annuity plan<\/td> Not applicable<\/td><\/tr> Account Maintenance Charges<\/td> Charges are applicable<\/td> Charges are not applicable<\/td><\/tr> Partial Withdrawal<\/td> Individuals can withdraw up to 25% of the amount invested if they have held the account for at least 3 years. Partial withdrawals can be made only three times during the tenure.<\/td> Partial withdrawals can be made anytime.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n Tax Benefits on NPS Tiers<\/strong><\/h2>\n\n\n\n
1. Tax Benefits under Section 80 C: <\/strong><\/h3>\n\n\n\n
2. Tax Benefits under Section 80CCD (1B):<\/strong><\/h3>\n\n\n\n
3. Tax Benefits under Section 80CCD (2):<\/strong><\/h3>\n\n\n\n
Final Thoughts <\/strong><\/h2>\n\n\n\n