Retirement planning is essential for a financially comfortable life in your golden years when your source of income ceases. You can use your retirement fund to fund your retirement if you have one. The National Pension Scheme is one such retirement-oriented pension scheme that the government has launched to assist you in planning your retirement. Tier 1 of the NPS is a retirement account. It is the primary NPS account, and only after opening a Tier 1 account can you open a Tier 2 account. Accounts can be opened under the NPS (Central Government), NPS (State Government), NPS (Corporate), and NPS (Private) (All Citizens Models). Here is all you should know about NPS tier 1 accounts.
- The NPS Tier 1 Scheme is a long-term investment account that lasts until you reach the age of 60. Even after maturity, you can choose to defer the maturity age by another 10 years and remain invested until the age of 70.
- Partial withdrawals from the Tier I Account are permitted to meet specific financial needs such as wedding costs, education expenses, medical emergencies, and so on.
- Tax deductions are earned when you invest in the Tier I Account.
- In one name, only one NPS Tier I account can be opened.
- Premature closure of the Tier I NPS account is permitted under certain conditions.
The applicant must be an Indian citizen.
The age of the subscriber must be around 18 and 65.
The applicant must invest a minimum of Rs 1,000 in their NPS account. The Know Your Customer (KYC) procedure must be followed by the applicant.
- Form of registration
- ID proof of the applicant
- Proof of the applicant's address, date of birth, or age
NPS Tier 1 Tax Benefits
- Contributions to the NPS are tax deductible under Sections 80CCD(1) and 80CCD(2) up to Rs 1.5 lakh per year.
- Employees' maximum deductible contribution under these sections is limited to 20% of their salary.
- The maximum contribution eligible for tax deduction under these sections for self-employed individuals is limited to 20% of income.
- In addition, contributions up to Rs 50,000 are tax deductible under Section 80CCD (1B). As a result, the total tax benefit from NPS contributions is Rs 2 lakh per year.
- Furthermore, NPS returns are tax-free while the money is held in the NPS account.
- At maturity, up to 60% of the total NPS corpus can be withdrawn tax-free. An additional 40% must be used to purchase an annuity.
How to Open NPS Tier 1 Account?
- Visit the nearest Point of Presence-Service Provider (POP-SP) branch, such as a bank.
- Fill out the offline application form, which is available at POP-SP.
- Submit the application form and essential documentation. Invest the desired amount on a regular basis.
- Navigate to the registration section of the eNPS website.
- Enter all of the requested information and confirm with the OTP sent to your mobile device.
- Choose your preferred account type; under this, you must select 'Tier 1'. It should be noted that you cannot open a Tier II account unless you already have a Tier 1 account.
- Choose a fund manager (there are eight fund houses, choose your preferred one)
- Choose your investment mode (auto and active modes). The auto mode allocates and rebalances your portfolio based on your age, whereas the active mode allows you to select the assets in your portfolio.
- Provide information about the nominees and their respective shares.
- Upload the requested documents in the format specified.
- Complete the registration and make the initial contribution of Rs 500.
- After completing the registration, your Permanent Retirement Account Number (PRAN) will be generated; keep it safe.
NPS Tier 1 Contribution
The annual Tier 1 contribution to the NPS is Rs 1,000. There is no cap on your NPS Tier 1 contribution. A minimum initial contribution of Rs 500 is required for the NPS Tier 1 Account.
- The maximum amount you can withdraw at retirement is 60% of your total wealth and balance. 40% must be used to purchase an annuity that will provide the subscriber with a monthly pension. The withdrawal of 60% of an NPS's accumulated wealth is tax-free.
- If you withdraw from NPS before the age of 60 or before retirement (other than for the purpose specified for partial withdrawal), the amount withdrawn is not taxable; however, the amount that can be withdrawn is limited to only 20% of the accumulated pension wealth in NPS, and the remaining 80% must be used to purchase an annuity providing the subscriber with a monthly pension. The 20% withdrawal is tax-free. However, annuity income is taxable in the year of receipt at the subscriber's applicable income tax slab rate.
- The amount withdrawn in the event of the subscriber's death is tax-free. The entire accumulated pension would be paid to the subscriber's legal heir/nominee. However, government employees cannot withdraw the entire amount. The nominee is required to purchase an annuity plan.
- The subscriber (other than Swavalamban subscribers) has the option of withdrawing the entire amount if the total corpus in the account is less than Rs. 5 lakh as on the Date of Retirement (Government sector)/attained the age of 60 (Non-Government sector).
- If the total amount in the account is less than Rs. 2.5 lakh before reaching the age of 60, the subscriber has the option of making a full withdrawal.
- The subscriber must be a member of the NPS system for at least three years.
- The withdrawal amount cannot exceed 25% of the subscriber's contributions.
- A subscriber may make a maximum of three withdrawals during the term of his or her NPS subscription.
- Withdrawals can be made for a variety of reasons, including children's education, marriage, the purchase of a home, and the treatment of serious illnesses.