NPS Tier 2 Account Eligibility, Advantages and Disadvantages – A Complete Guide

National Pension Scheme (NPS) Tier 2 account is a Central Government scheme provided to protect the interest of the policyholders by means of various regulations. Let us take a look at its pros and cons, in this post.

Policyholders of NPS tier 1 account can open a NPS Tier 2 account, which can be availed by government employees to enjoy tax benefits under sections 80C and 10(10D) of the Income Tax Act, 1961. Under this plan, the policyholder can withdraw their corpus at any time. The NPS tier 2 account can be opened with a minimum contribution of INR 2,000. Let us learn about the NPS tier 2 account benefits and other details in this post.

Eligibility Criteria to Open an NPS account and to avail NPS Tier 2 tax benefit

The eligibility criteria are as follows:

  • Applicant must be a resident or non-resident citizen of India
  • Must have an active Tier 1 account
  • People between the age group of 18-60 years are applicable for the plan
  • The applicant should fulfil client compliances as mentioned in the registration form
  • The applicant must be a government employee to avail NPS Tier 2 tax benefits

NPS Tier 2 Advantages and Disadvantages

What are the benefits of an NPS Tier 2 account? NPS Tier 2 accounts have several benefits. However, at the same time it has certain limitations as well, for which we mentioned all the NPS advantages and disadvantages in the table below:

Advantages of NPS Tier 2 Account Disadvantages of NPS Tier 2 Account
Good Returns – As per an individuals’ risk appetite, NPS tier 2 account holders can choose an asset allocation pattern No Guaranteed Returns – Under this account, money is accumulated depending on the returns and the returns are created through funds such as corporate bonds, securities, equity etc. Hence, it is quite evident that market fluctuations can have an adverse effect on the returns of the plan
Allow Flexibility – The NPS Tier 2 account holder has the flexibility to choose from any registered Pension Funds and other options of investment.  This is because the NPS tier 2 scheme allows numerous choices. Policyholders under this plan can even move from one option of investment to another No regular Annuity – Another drawback of NPS tier 2 account is that isdoesn’t provide pension on a monthly basis when you retire. Rather, this plan helps in accumulating retirement corpus
Tax Benefits – NPS tier 2 accounts allow the policyholders to avail tax benefits on premiums paid towards the plan. However, the NPS tier 2 benefits under the plan can be availed by government employees and not private employees Taxability – This is another disadvantage of the NPS tier 2 scheme. Like in bank FDs, the amount under the NPS tier 2 plan can be withdrawn easily. However, unlike FDs here the complete fund is counted as taxable amount.
Withdrawal from Plan – This is another benefit of the NPS tier 2 account that the money accumulated under this account can be withdrawn anytime Single Account – The disadvantage, on the other hand, is that a person can have only one NPS account throughout life.
Account Management Cost is Low – The best thing about an NPS Tier 2 account is that it is a low-maintenance product allowing low management cost. Hence, the NPS Tier 2 benefit of accumulated corpus to the policyholder is large Caters to government employees – A huge NPS disadvantage of the NPS tier 2 account is that the tax benefits under this account caters only to the people working in government jobs and not to the private employees.
Easily to Access – Accessing the NPS tier 2 scheme is seamless, while contributing or paying premium towards the fund is also very convenient Must have Tier 1 to Open Tier 2 – If the policyholder wants to open a Tier 2 account, he/she must have an active Tier 1 account
Frequency – The policyholder under an NPS account can deposit money at any time. So, as per convenience, a policyholder can pay towards an NPS account on monthly, quarterly, half-yearly or yearly basis. Withdrawal Restrictions – The withdrawal under this plan can’t be beyond the sum of all premiums paid by the policyholder
Fund Managers – The NPS tier 2 funds are managed by qualified fund managers and are invested as per the approved investment guidelines Limited Managers – The plan allows limited options to the investors to choose fund managers to manage their funds.
Coverage – NPS tier 2 scheme offers wide coverage as it allows all Indian citizens as well as NRIs to open a Tier 2 account. However, for this it is required for them to have a Tier 1 account. The entry age is also more and ranges between 18 to 60 years
NPS has some risks associated with the policy like average maturity, credit risk, modified duration etc.
Low Investments – Another benefit is that the Tier 1 and Tier 2 accounts of NPS can be opened with a minor investment by depositing the amount via cheque, cash, or demand draft Investment Restrictions – Policyholders cannot invest more than 50% of their total investment in the NPS account

How to Open an NPS Tier 2 Account?

There are two ways to open an NPS Tier 2 account –

Online method to open an NPS Tier 2 Account:

  • Visit the eNPS website and go to ‘National Pension System’
  • A pop-up will indicate ‘Tier 2 Activation’. Click on it
  • Now, enter your details like PRAN number (Permanent Retirement Account Number), DOB, PAN number, along with the Captcha code
  • ‘Verify PRAN’
  • After the PRAN details are verified on your NPS tier 1, the NPS Tier 2 scheme would be activated

Offline method to open and NPS Tier 2 Account:

  • Use the ‘Subscriber’s POP-SP’ to create a Tier 2 account
  • Install Annexure 1 of Tier 2 information form. Fill it and send it to the PPOP-SP
  • The bank details of the policyholder would be required to open a Tier 2 account. This way, you can directly deposit the amount to the policyholder’s bank account during withdrawal

Now, the setup of the PRAN account needs to be completed. Once it is done, you would receive a login id and password, which can be used to review an NPS account online with a click.

In Conclusion

If you want to avail the tax benefits of NPS tier 2 scheme, you can do so under sections 10(10D) and 80C of the IT Act 1961.

No, the NPS tier 2 tax benefits can be availed by government employees only. 
Once you withdraw from the NPS tier 2 account, can you still enjoy the tax benefits under NPS tier 2 scheme? 
No, if a policyholder withdraws from an NPS tier 2 account, he/she cannot avail tax benefits under the NPS tier 2 scheme.

Yes, an NRI is eligible to open an NPS Tier 2 account. However, they must be a citizen of India irrespective of the country they stay in. Only when the citizenship of the policyholder is altered, their account will be closed.

The NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) of India to protect the interests of policyholders. 

Withdrawals from NPS tier 2 proceeds are directly credited to the bank account of the subscriber. 

Several documents are needed to open an NPS account, such as;
Subscriber Registration Form
Identity Verification 
Address Proof
Age/Date of Birth Proof

Author Bio

Paybima Team

Paybima is an Indian insurance aggregator on a mission to make insurance simple for people. Paybima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. Paybima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.

Choose from India’s top insurers

Latest Post

Let’s be honest – life insurance planning isn’t exactly someone’s weekend hobby. It is the financial equivalent of flossing: we understand its importance, but we tend to put it off. But somewhere between balancing work and life, you might realise you need to have a solid plan in place – just in case.

See nowSee now

If you think of life insurance, chances are you are picturing something people buy in their 30s or 40s. But what if you are 65 or older and just getting started? The good news is that you are never too late. Whether you are thinking of easing the financial burden on your family, covering final expenses, or simply leaving behind a legacy, there are life insurance options tailored just for you. 

This article will be a guide to life insurance for senior citizens above 65 years, explaining why it is important, the type of insurance options, and how to get the right policy for you. 
 

See nowSee now

Health insurance plans are purchased with the hope of medical protection in times of need. However, sometimes it ends up being a source of surprise and disappointment. This mostly happens when people rush to buy health insurance plans, often overlooking essential aspects. Ignoring waiting period clauses, misunderstanding exclusions, and being unaware of sub-limits can lead to unwanted problems in the future.

 

See nowSee now

If you are looking at investment policies offering INR 1 Crore in 5 years, we talk about some excellent plans in this post to help you choose the best one and reach your goal. However, it is important not to get swayed. Doing proper research and taking advice from financial or insurance advisors is important. Learn about such investment plan in this post.

 

See nowSee now

The last few years have made it very clear that having health insurance is essential for everyone. Whether you are a young professional or a senior citizen, are single or have a family to support, health insurance cannot be ignored. Keeping this in mind, health insurance companies offer comprehensive plans that suit people with varied insurance needs. 
 

See nowSee now