BAJAJ BROKING
February 10, 2025
4 mins read
Anyone who has a Tier I account with the National Pension Scheme (NPS) can also open a Tier II account, which has many benefits. Read more..For example, you can withdraw money anytime from your Tier II account without paying any exit load. Besides, you can choose a different investment pattern for a Tier II account than a Tier I account. That said, withdrawals from a Tier II account are taxable based on your income tax slab. Still, if you want the benefits of NPS with the flexibility of withdrawing your money anytime, you can consider opening an NPS Tier II account. Read less
When you open a National Pension Scheme account, Tier I is the default account you open. However, you can also open a Tier II account, which is voluntary, along with a Tier I account. In other words, it is up to you to open a Tier II account or not.
The best thing about a NPS Tier 2 account is that it does not have a lock-in period. Hence, you can withdraw your money whenever you want. Besides, you do not have to pay an exit load when you withdraw money from your Tier II account.
To open a Tier II account, you have to make a minimum contribution of ₹ 1,000. But, you do not have to make mandatory annual contributions to this account. By contributing to a Tier 2 account, you can make additional contributions to your NPS account, which can help you create a sizeable corpus for your retirement. Having explained what is a Tier 2 account in NPS, let us discuss this topic further.
The main benefits of an NPS Tier 2 account are as follows:
This account allows you to withdraw money whenever you wish. Hence, it is a great way to save your funds for your daily needs.
No exit load is payable on withdrawals from this account.
You do not have to maintain a minimum balance in an NPS Tier 2 account.
You do not have to pay extra annual maintenance charges.
You have the flexibility to move funds anytime from your Tier 2 account to your Tier 1 account, which is your primary account with NPS.
For your Tier 2 account, NPS allows you to choose a different investment pattern than your Tier 1 account.
Now that you have learnt what is a Tier 2 account in NPS and its benefits, let us discuss its eligibility.
Additional Read: National Pension Scheme Tier I Account
If you want to open an NPS Tier 2 account, you have to meet the following criteria:
You must be a resident of India.
You should be between 18 and 60 years old.
You must have an NPS Tier I account and you should have been allotted a Permanent Retirement Account Number (PRAN).
You need to deposit a minimum amount of ₹ 1,000 to open a Tier II account.
A Tier 2 account can be opened easily by using the offline or the online route. If you want to open it offline, you have to visit your bank’s branch and make an application. However, if you want to open it online, you need to follow the process outlined below:
a) Go to electronic National Pension system (eNPS). Select the “Tier II activation” tab.
b) A window will open. It will ask you for details like your PRAN, PAN, and Date of Birth. You need to click on “Verify PRAN.” Once you do that, you will get a one-time-password (OTP) on your registered mobile number.
c) Then, you should enter the OTP and click on “Continue.”
d) Provide your bank account details and then click on “Validate Aadhaar.”
e) Your computer’s screen will show you an acknowledgment number. Make a note of it and click on “Ok.”
f) Now, you have to select a Pension Fund Manager (PFM) and mention your preferred investment option, like, Auto or Active.
g) Then, you need to provide the nominee’s details.
h) Scan a copy of your PAN card and cancelled cheque and upload them.
i) Now, you have to make a minimum contribution of ₹ 1,000 towards your Tier II account.
j) You will get a receipt for your contribution.
k) You need to e-sign the application with the help of your Aadhar number. After that, you will get an OTP on your registered mobile number, which you should enter and submit.
l) After you e-sign the application, you should download and print it. You need to sign the printed form and send it to the head office of the NSDL in Mumbai through a registered post.
There are no tax benefits for withdrawing your money from an NPS Tier 2 account. In fact, when you withdraw money from a Tier II account, it will be added to your total taxable income and will be taxed based on your income tax slab.
If you already have a Tier I account with NPS, it makes sense to open a Tier II account as well, provided you genuinely need it. The biggest benefit of a Tier 2 account is that it lets you withdraw money whenever you want. That said, bear in mind that withdrawals are taxable based on your slab. Hence, you should carefully analyse the pros and cons of a Tier 2 account before opening it.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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It depends upon your objective. If you want an option that provides you with the benefits of NPS but also allows you to withdraw your funds anytime, then NPS Tier II is a good investment option.
NPS Tier 2 offers more flexibility than a fixed deposit (FD), as you can withdraw your money anytime from the former which is not possible from the latter. NPS Tier 2 allows you to invest in assets like equities, which are high-risk but can also offer high returns. However, investments in FD fetch you a fixed rate of interest. So, FDs are relatively less risky than an NPS Tier 2 investment.
Yes, NPS Tier 2 withdrawals are taxable based on your income tax slab. So, you should be careful of your tax obligation while withdrawing money.
It depends upon your investment objective and risk tolerance level. An NPS Tier 2 account allows you to invest in equities, government bonds, and corporate bonds. However, PPF is a fixed interest investment. So, PPF is less risky than NPS. But, NPS Tier 2 allows you to withdraw your money anytime. However, PPF comes with a lock-in period of 15 years.
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