NPS which is a retirement scheme also comes with a supplementary account which can be opened at the discretion of NPS Tier I subscriber. And in it there are no investment and withdrawal restriction and sum is deployed into the various schemes available in NPS.
And here personal finance experts are of the opinion that investors in place of savings account can also open a NPS Tier II account. "The NPS tier II account can be operated like a saving account without a cheque book but you will have to pay transaction charges for each transaction.," says Balwant Jain, investment and tax expert.
And for the taxation benefits of NPS Tier II:
For investment or contribution towards NPS Tier II only central government employees can avail benefits as part of Section 80C with the constraint that in such a situation it comes with a lock in of 3 years. And subscribers to NPS II can choose from any of the 8 NPS fund managers including the likes of SBI, UTI, LIC, HDFC, ICICI, Kotak, Reliance and Aditya Birla Sun Life Pension Fund.
Also, in respect of the withdrawal from the NPS tier II account, experts opine that only gains made on such withdrawal shall draw taxation implication. "In my opinion the same should be taxed like your debt mutual fund where the profits are taxed as long term with indexation, if held for more than 36 months and as short term in case redeemed within 36 months. Please note that it is the profits and not the entire withdrawal which is taxable," says Balwant Jain.