NPS Tier 1 vs Tier 2: Difference between Tier 1 and Tier 2 in NPS (2024)

FAQs

NPS Tier 1 vs Tier 2: Difference between Tier 1 and Tier 2 in NPS? ›

Tier 1 and Tier 2 NPS accounts are two different categories. As opposed to Tier 1, which serves as the principal NPS account for building a retirement fund, Tier 2 is similar to a voluntary savings account and provides greater flexibility for deposits and withdrawals.

While NPS Tier I is well-suited for retirement planning, Tier II NPS accounts act as a voluntary savings account. Tier I NPS investment is a long-term one and the amount cannot be withdrawn until retirement. This is not the case with Tier II NPS accounts.

Tier II is an add-on account which provides you the flexibility to invest and withdraw from various schemes available in NPS without any exit load. You can save the details captured during Tier II Activation process at regular intervals by clicking on 'Save and Proceed'.

You can open the NPS Tier 2 account only when you already have a Tier 1 account. Tier 2 account is a voluntary account with flexible withdrawal and exit rules.

NPS Tier 2 is more cost-effective than mutual funds. Its expense ratio doesn't go beyond 0.09 per cent. By contrast, 'direct' mutual funds' expense ratio ranges from 0.3-1 per cent. And if you take 'regular' mutual funds into account, the expense ratio is even higher, ranging from 0.6 to 2.3 per cent.

NPS Tier 2 Advantages and Disadvantages

Like in bank FDs, the amount under the NPS tier 2 plan can be withdrawn easily.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. Single Account – The disadvantage, on the other hand, is that a person can have only one NPS account throughout life.

Tier 1 instruction is standards-driven, focusing on students' broad skills and generalizing to a learning target. In contrast, Tier 2 intervention targets a specific skill deficit that has been identified through assessment. Instruction and intervention targets this specific skill.

Tier 1 is the equivalent of Social Security benefits and Tier 2 is like an employer's pension plan. Social Security Benefits: Payments made under Title II of the Social Security Act. They include old- age, survivors, and disability benefits.

At what age can I withdraw from NPS Tier 1? ›

NPS Maturity Withdrawal Rules for Tier I Account:

Once an investor turns 60, up to 60% of the corpus in Tier I accounts can be withdrawn as a lump sum. The remaining 40% has to be used to buy annuity products that will be used to pay post-retirement pension.

Top 3 Benefits of NPS Tier 1 Account

You can claim a minimum tax exemption worth 10% of your total salary or income. You can get additional tax benefits up to ₹50,000 as per Section 80CCD(1B). Thus, the total benefits add up to ₹2 lakhs. The returns on your accumulated corpus in the NPS account are free from taxation.

Tier I. NPS subscribers can choose partial withdrawal from Tier I corpus in specific situations. For instance, treatment of chronic health conditions, higher education, marriage of children, etc. An investor who has invested in NPS for 3 years, can withdraw a maximum 25% of the total contribution.

You can also look at the NPS vs. fixed deposit question from the purview of risk. If you are a risk-averse investor, opening an FD makes more sense. However, if you have the risk-appetite to weather market-linked changes, you can also opt for a tier II NPS account to maximise your returns from your investments.

NPS Tier 2 does not have a fixed rate of interest. It gives returns by investing your money in the 4 NPS asset classes – equities, corporate bonds, government bonds and alternative assets. You can decide your split between these assets subject to certain limits – 75% on equities and 5% on alternative assets.

NPS vs PPF: Comparison

Returns: NPS can give up to 10% in some cases whereas PPF provides low but stable returns around 7-8%. Liquidity: NPS has slightly higher liquidity as it provides multiple opportunities of partial withdrawal. PPF however, allows partial withdrawal after a certain lock-in period and an amount cap.

Both investment options offer tax benefits. The tax advantages of NPS, however, surpass those of equity mutual funds, whose long-term returns are subject to a 10% exit tax. Compared to Rs 1.5 lakh for ELSS plans, NPS programs provide a larger tax deduction of up to Rs 2 lakh under Sec 80C.

Which is the best bank to open NPS account? ›

Corporate Subscriber:

Additional Tax Benefit is available to Subscribers under Corporate Sector, u/s 80CCD (2) of Income Tax Act. Employer's NPS contribution (for the benefit of employee) up to 10% of salary (Basic + DA), is deductible from taxable income, up-to 7.5 Lakh.

NPS Tier 2 is a voluntary savings account facility that you can enable only if you have a tier 1 account. Government employees can also avail of NPS tier 2 tax benefits under sections 80C and 10(10D) of the Income Tax Act, 1961. *All savings are provided by the insurer as per the IRDAI approved insurance plan.

In order to withdraw from Tier II account, the subscriber needs to submit a duly filled UOS-S12 to the associated POP-SP. On T+3 days, (T being the date of processing) the funds shall be transferred from the Trustee Bank to subscriber's bank account as registered in the CRA system.

In case of Tier II account; you may contribute either through any of the POP or through the eNPS Portal (https://enps.nsdl.com) or the NPS Mobile APP (available in Google Play store).

Tier 1: This is the organization's “first line of defense,”. Tier 1 support staff are usually solving basic issues like password resets or user problems. Tier 2: When a customer issue is beyond the skill of the Tier 1 staff to resolve, the issue escalates to Tier 2.

The levels are organized as follows: Level or Tier 1: Low-cost generic and brand-name drugs. Level or Tier 2: Higher-cost generic and brand-name drugs. Level or Tier 3: High-cost, mostly brand-name drugs that may have generic or brand-name alternatives in Levels 1 or 2.

Tier 1: Least expensive drug options, often generic drugs. Tier 2: Higher price generic and lower-price brand-name drugs. Tier 3: Mainly higher price brand-name drugs. Tier 4: Highest cost prescription drugs.

Tier 2: A mandatory contributory scheme with monthly contributions of 5% on the basic salary of all employees. Tier 2 is a defined contribution scheme and contributions are fully tax-exempt and are privately managed by National Pensions Regulatory Authority (NPRA) licensed service providers.

The non-social security equivalent benefit (NSSEB) portion of Tier 1 benefits, Tier 2 benefits, Vested Dual benefits, and Supplemental annuity payments are considered taxable income regardless of the amount of any other income you may have. These portions of your annuity are subject to Federal income tax withholding.

How is Tier 2 calculated? ›

The formula is Tier 2 capital divided by risk-weighted assets multiplied by 100 to get the final percentage. The acceptable amount of Tier 2 capital held by a bank is at least 2%, where the required percentage for Tier 1 capital is 6%.

Normal exit is allowed after completion of 3 years. The Subscriber will be required to utilize at least 40% of the corpus for purchase of annuity and the remaining amount can be withdrawn in lump sum.

Is it Possible to Withdraw 100% from NPS? No, it is not possible to withdraw 100% of the accumulated corpus from the National Pension System (NPS) at once. The NPS is a retirement-focused investment product, which means that the money you invest in it is meant to provide you with a regular income after you retire.

In case of Pre-mature Exit- If total accumulated corpus is less thanor equal to Rs. 2.5 lakh, the Subscriber can avail the option of complete Withdrawal. However, you can exit from NPS only after completion of 5 years.

There are some disadvantages of National Pension System scheme as mentioned below: Limits on amount withdrawal – NPS comes with a lock-in period. Further, there are restrictions on the withdrawal from the pension amount. In fact, NPS restricts any kind of withdrawals until the policyholder reaches 60 years of age.

In order to ensure timely exit/withdrawal from NPS, CRA sends communication to the subscriber & Nodal office 6 month before the date of superannuation/attainment of 60 years to initiate the withdrawal claim in the CRA system and generates a Claim ID for each claim request.

At present, once an NPS subscriber turns 60, she can withdraw up to 60 per cent of the retirement corpus as a lump sum. The remaining 40 per cent of the corpus mandatorily goes into buying annuity. NPS subscribers also have the option to defer lump sum withdrawal till the age of 75 years.

Can we start SIP in NPS Tier 2? ›

You can either start a systematic investment plan (SIP) for NPS through online (D-Remit) or offline, points of presence (POPs), as per your convenience. An active NPS account with a valid permanent retirement account number (PRAN) and updated mobile/email ID details.

The Aggressive Life Cycle Fund or LC75 allows you to allocate up to 75% of your NPS investments in Equities up to the age of 35 years. Among all NPS Tier 1 investment options, Equities offer the highest long-term growth potential even though they are prone to short-term volatility.

PFRDA has appointed NSDL and KARVY as Central Record Keeping Agency (CRA) for NPS. Both venture in India carries out the functions of record keeping, administration and customer Service for all subscribers under NPS.

Differences between NPS and eNPS

While feedback from NPS is normally associated with a particular customer (with all their data: revenues, segmentation, etc.), eNPS data are anonymous, as is typical of all work environment and employee satisfaction surveys.

Tier 2 capital is considered less reliable than Tier 1 capital because it is more difficult to accurately calculate and more difficult to liquidate.

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. Frequency – The policyholder under an NPS account can deposit money at any time.

Tier 1 Suppliers: These are direct suppliers of the final product. Tier 2 suppliers: These are suppliers or subcontractors for your tier 1 suppliers. Tier 3 suppliers: These are suppliers or subcontractors for your tier 2 suppliers. These tiers can extend longer than three.

The NPS Tier 1 account matures at the age of 60 and you can extend it till the age of 70. NPS Tier 1 is eligible for tax deduction on contributions up to Rs 1.5 lakh under Section 80 C and an additional Rs 50,000 under Section 80 CCD (1B) of the Income Tax Act, 1961.

Tier 1 instruction is standards-driven, focusing on students' broad skills and generalizing to a learning target. In contrast, Tier 2 intervention targets a specific skill deficit that has been identified through assessment. Instruction and intervention targets this specific skill.

What means Tier 1 and Tier 2? ›

Tier 1 refers to core capital while Tier 2 refers to items such as undisclosed resources.

NPS Maturity Withdrawal Rules for Tier I Account:

Once an investor turns 60, up to 60% of the corpus in Tier I accounts can be withdrawn as a lump sum. The remaining 40% has to be used to buy annuity products that will be used to pay post-retirement pension. However, in case the pension corpus is less than Rs.

In order to withdraw from Tier II account, the subscriber needs to submit a duly filled UOS-S12 to the associated POP-SP. On T+3 days, (T being the date of processing) the funds shall be transferred from the Trustee Bank to subscriber's bank account as registered in the CRA system.

Tier 2 provides selective supports for individuals or groups of students with some additional low-level learning, social-emotional and developmental needs. This tier adds a layer of support to a select group of students that will ultimately be impactful for all students.

Tier 2 is designated as the second or supplementary layer of a bank's capital and is composed of items such as revaluation reserves, hybrid instruments, and subordinated term debt. It is considered less secure than Tier 1 capital—the other form of a bank's capital—because it's more difficult to liquidate.

(1) See Tier 1 network. (2) The top level. A Tier 1 city is one of the major metropolitan areas in a country. A Tier 1 vendor is one of the largest and most well-known in its field. However, the term can sometimes refer to the bottom level or first floor.