NPS Tier 1 Account - 2025
Tier 1 National Pension Scheme (NPS) Account is the most basic form of pension account which is offered by the Government of India. The government-led scheme is aimed to fulfill the pension needs of both public and private sector employees. In order to lend structure to the application of NPS, the government has broken it down into two distinct tiers-Tier 1 and Tier 2.
Table of Contents
About Tier 1 NPS Account
Category | Tier-I account |
Maximum contribution | No limit to the amount of contribution |
Minimum contribution | Rs.500 or Rs.1,000 in a year must be made towards the account |
Tax deductions | Subscribers are eligible for a tax deduction of up to Rs.2 lakh. |
Withdrawals that are allowed | Subscribers cannot withdraw the investments made towards the account until they retire. |
Status | It is a mandatory account for subscribers who register for an NPS account. |
Features of Tier 1 NPS Account
Here are few significant features of Tier 1 NPS Account which differentiate it from the NPS Tier 2 account.
- Tier 1 NPS Account is the most basic form of pension account
- Premature withdrawals from the Tier 1 NPS Account are allowed but only in the form of repayable advance and only if the investor has completed 15 years of service. Such withdrawals are allowed only in case of unforeseen circumstances like critical illness and emergency
- Investors can also partially withdraw up to 50% of the funds in case they have completed 25 years of service
- Tier 1 NPS account for government employees is a scheme that NPS invests mostly in government and corporate bonds
- Tier 1 NPS account for non-government entities invests mostly in a mix of stocks, government and corporate bonds, fixed deposits and liquid funds
- Tier 1 government schemes require you to invest 10% of basic salary plus dearness allowance to be invested every year. Same amount is contributed by the government
- Tier 1 private sector schemes require you to invest at least 6000 rupees per year with a minimum of 500 rupees per month
- For the purpose of buying or constructing your first house, NPS fund can be withdrawn
- NPS Tier 1 Account has the flexibility of being operated from anywhere in the country irrespective of employer and the location of job
- NPS subscribers can shift from private sector to public and vice versa while maintaining the same NPS account
- Every subscriber of the NPS Tier 1 Account is assigned a 12 digit Permanent Retirement Account Number (PRAN). In case of lost or stolen PRAN Card, the same can be reprinted by paying a nominal fee
- One NPS Account per individual is allowed
Eligibility Criteria for NPS Tier 1 Account
Following are some of the parameters that need to be considered for individuals to be eligible for the NPS Tier 1 account.
- Any citizen of India, resident or non-resident can join the National Pension System
- Individual needs to be 18-60 years of age on the date of submission of NPS form
- Non Resident Indians are also eligible to register for the NPS scheme
Documents Required for Opening NPS Tier 1 Account
Certain specific documents need to be submitted along with the NPS Account opening form. These are listed below.
- Duly filled registration form
- Identity Proof of applicant
- Address Proof of applicant
- Age or Date of Birth proof of the applicant
Taxation Process of Funds in the NPS Tier 1 Account
There is a lot of discrepancy regarding the taxation rules that apply to NPS Tier 1 Account. However, here is a list of NPS tax benefits that apply to individuals enrolled in the NPS Tier 1 Account.
Tax Rebate for salaried individuals
- Employee’s own contribution is eligible for tax benefit of up to 10% of salary (Basic + DA). This is under section 80CCD of the Income Tax Act and has a limit of Rs. 1 lac per annum.
- Employee is eligible for tax deduction on employer’s NPS contribution amount too. This is 10% of salary (Basic + DA) contributed by employer. It has a limit of Rs.1 lac and is as per section 80CCC of the Income Tax Act.
Tax rebate for self-employed individuals
- Tax rebate for up to 10% of their gross income with a limit of Rs.1 lac per annum. This is in confirmation with section 80CCD of the Income Tax Act.
FAQs on NPS Tier 1 Account
- Is it possible to open an NPS Tier 1 account without having an NPS Tier 2 account?
Yes, an NPS Tier 1 account can be opened without an NPS Tier 2 account. However, to make an investment into an NPS Tier 2 account, you must first open an NPS Tier 1 account.
- What interest rate does an NPS Tier 1 account offer?
As a market-linked savings plan, NPS Tier 1 does not have a fixed interest rate. However, the effective interest rate may appear to be higher than the interest rate provided by numerous other savings plans.
- If I have invested in another provident fund, am I still eligible to invest in NPS Tier 1?
Yes, regardless of your investment in any other provident fund, you can make an NPS Tier 1 investment.
- What is the minimum contribution in an NPS Tier 1 account for NRIs?
NRIs have to contribute a minimum of Rs.6,000 in an NPS Tier 1 account.
- What happens to my NPS Tier 1 account if I deposit more than Rs.2 lakh?
You can contribute any amount to your NPS Tier 1 account. However, even if you make contributions of more than Rs.2 lakh, you will only be eligible for tax benefits up to Rs.2 lakh in a financial year.
- What is the age limit to open an NPS Tier 1 account?
You should be aged between 18 and 70 years to open an NPS Tier 1 account.
- What is the minimum amount to open an NPS Tier 1 account?
To open an NPS Tier 1 account, the minimum amount is Rs.500.
- Which investment options are available in NPS?
NPS provides two investment options: auto choice/lifecycle fund and active choice. The investor can make informed decisions about how much money to allocate to various assets by using active choice. The second option is an automated or default option that modifies the portfolio based on the subscriber's age.
- How many nominees can I designate for an NPS Tier 1 account?
You may designate up to three nominees for an NPS Tier 1 account. You must complete the appropriate section of a registration form and include information about your nominee when creating an NPS account.
- Can I withdraw money from NPS Tier 1 before maturity?
For NPS Tier 1, withdrawals prior to maturity are permitted only after the account has been open for three years. This kind of NPS withdrawal is known as 'premature exit.' You are eligible to withdraw a lump sum payment equal to no more than 60% of the total corpus in the Tier 1 account. An annuity that pays a regular pension income must be purchased with the remaining 40% of the funds.
- Can HUFs open an NPS Tier 1 account?
No, HUFs cannot open an NPS Tier 1 account.
- If an investor passes away before the age of 60 years, what happens to their NPS Tier 1 balance?
The nominee of the investor may be entitled to the total amount in the Tier 1 account in the event of the investor's death before the age of 60 years. However, since these accounts don't mature before the investor reaches the age of 60 years, all interest will be lost.
- What is the National Pension System (NPS)?
The National Pension Scheme, or the NPS, is a government-backed retirement and pension scheme that allows individuals to invest for retirement while benefiting from tax savings. It is included under Section 80C of the Income Tax Act 1961.
- Who is eligible to open an NPS Tier 1 account?
Indian citizens aged 18 years to 70 years can open an NPS Tier 1 account. They must invest a minimum of Rs. 1,000, complete the KYC process, and meet other criteria.
- What are the key features of NPS Tier 1 accounts?
NPS Tier 1 accounts allow contributions as low as Rs. 1,000 per year. They offer additional tax deductions and tax-exempt returns and require 40% of the accumulated amount to be used to purchase an annuity upon maturity. Premature withdrawals are allowed under certain conditions.
- How can I open an NPS Tier 1 account?
You can open an NPS Tier 1 account online through the eNPS website or offline at a Point of Presence-Service Provider (POP-SP). For online registration, fill out the form, provide the required details, and make an initial contribution of Rs. 500.
- What is the interest rate on NPS Tier 1 accounts?
Interest rates on NPS are variable and depend on the fund house chosen by the subscriber. The available fund houses include the SBI Pension Fund, UTI Retirement Solutions, and others. The default fund house is the SBI Pension Fund if no choice is made.
- What are the withdrawal rules for NPS Tier 1 accounts?
Upon retirement or reaching the age of 60, up to 60% of the amount that is accumulated can be withdrawn, while 40% must be used to buy an annuity. Premature withdrawals are limited to 25% of the contributions, with certain conditions, and are tax-free.
- Can I withdraw completely from my NPS account before retirement?
If the total corpus is less than Rs. 2.5 lakh, you can withdraw the complete amount before reaching age 60. Otherwise, only 25% of the contributions can be withdrawn before retirement, with the remainder used for annuities.
- What documents are required to open an NPS Tier 1 account?
For KYC, you need identification proof (e.g., Aadhaar Card, PAN Card), address proof (e.g., electricity bill), and proof of date of birth (e.g., birth certificate for minors). Two passport-sized photographs are also required.
- Are there any additional tax benefits for NPS Tier 1 account holders?
Yes, under Section 80CCD(1), you can claim a tax deduction of up to 10% of your gross income, subject to a maximum of Rs. 1.50 lakh. Additionally, under Section 80CCD(1B), you can claim an extra deduction of up to Rs. 50,000 on NPS investments.
- Can I have multiple NPS accounts?
No, an individual is allowed to have only one NPS account. If you have multiple accounts, you must consolidate them into a single account.
Disclaimer
Credit Card:
Credit Score:
Personal Loan:
Home Loan:
Fixed Deposit:
Copyright © 2025 BankBazaar.com.