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National Pension Scheme (NPS) Tier 1: The Detailed Guide

02-08-2022 |

Retirement is the most valuable phase in your life. It is free from family, work and other financial commitments. However, retirement can be peaceful when you have the required financial resources timely.


Therefore, investing in various financial products is necessary to help accomplish all your money goals. The government and financial institutions offer different retirement pension plans in our country. The National Pension Scheme is one of the most prevalent among them. So, what is the most popular National Pension Scheme(NPS) Tier 1?


Before we understand the NPS Tier 1, let us briefly know what the NPS scheme means.


What is the National Pension Scheme?

National Pension Scheme(NPS) is a retirement pension scheme introduced by the Government of India wherein you will open an NPS account and invest a certain amount annually for a long term. The amount accumulates into a huge corpus at the time of your retirement. At maturity, you can withdraw a certain amount and utilise the remaining amount to purchase an annuity plan to receive a regular income as a pension after retirement.


There are two investment accounts in the NPS: Tier I and Tier II. Investors can choose to invest in one account or both based on their financial requirements and affordability. Investing in the Tier I account is compulsory. Therefore, Tier II is voluntary. And for investing in Tier II, you should have opened the Tier I account.


Let us discuss in detail the Tier I NPS account here. 


NPS Tier I Eligibility


Understanding the eligibility criteria is primary to investing in the NPS Tier I scheme.

  • You have to be a citizen of India or an NRI to invest in NPS Tier I.
  • Your age has to be between 18 years and 65 years to invest in the NPS Tier I. However, if you are over 65 years old and want to open the NPS account, you will be allowed to do so, subject to certain terms and conditions.

 
How Does the NPS Tier I Investment Work?

 

The amount present in your NPS Account is invested in the financial securities market.

 

When you plan to invest in NPS Tier I, there are two different options.

 

  •  Active Choice - In the active choice strategy, you, as an investor, can decide on the type and proportion of investment.
  • Auto Choice - In the auto choice strategy, the fund and the allocation are pre-determined based on the risk profile.


Here is a detail about the investment funds available for the NPS Tier I scheme.

 

  • Asset Class A - Investing in alternative assets such as Alternative Investment Funds(AIF), Mortgage Backed Security(MBS), etc.,
  • Asset Class C - Investing in financial instruments that yield fixed interests.
  • Asset Class E - Investing in equity up to 50% of the portfolio.
  • Asset Class G - Investing in government securities.

If you have opted for the active choice strategy, you can invest in the asset classes mentioned above based on your preferences. In addition, you can decide on the proportion of investment made in the individual asset classes.


If you have opted for the auto choice strategy, your investment amount will be split and invested in the different asset classes based on your risk appetite and age. The proportionate investment is prescribed by the Pension Fund Regulatory and Development Authority(PFRDA). Therefore, you will not be required to monitor the account.



NPS Tier I Withdrawal
Rules

 

Withdrawal benefits in NPS Tier I are governed by certain rules. Here is a detail about it.

  • You can make up to 3 partial withdrawals from the NPS Tier I account. And it is applicable after 3 years of opening the account. Withdrawal can be for fulfilling important financial commitments such as paying for your child's higher education, medical costs related to dependent parents, etc.
  • The withdrawals should not exceed 25% of your contribution in total.
  •  The NPS Tier I account will mature when you are at the age of 60. You can withdraw up to 60% of the corpus at this stage and utilise the remaining to purchase the annuity.
 

Benefits of the NPS Tier I Scheme


Investing in the NPS Tier I scheme is attractive for its tax* benefits. Here is a detail about it.

  1. You can avail of a tax* deduction for the investment made in the NPS Tier I of up to ₹1,50,000 under Section 80C of the Income Tax Act, 1961.
  2. You can avail of another tax* deduction of up to ₹50,000 under Section 80CCD. Therefore, the total tax* deduction applicable is ₹2 lakhs.
  3. The 60% withdrawal made at maturity is tax*-exempt.
  4. The NPS Tier I returns retained in the account remain tax*-exempt.


Planning for retirement is certainly important to lead a satisfying and peaceful life. And, if you have a huge dependent family, ensuring a financial resource in your absence becomes even more important. Purchasing a life insurance scheme is one of the methods to secure your family in the event of your unexpected demise. Your loved ones will get the necessary financial benefits when they provide the life insurance details and related documents to your insurer timely.


Our Tata AIA Life insurance provides varied, flexible features to enhance the financial benefits based on your requirements. For example, you can pay the premium for a limited term or, through the policy tenure, help your family receive the payout as a regular income, a combination of lump sum and regular income or as a lump sum, etc. Therefore, make financial decisions wisely to maximise the benefits.

 

Conclusion

Investing in the NPS Tier I is considered one of the effective means to save funds for your retirement consistently over the long term. It provides dual benefits, creating wealth and saving on tax. You can open the NPS Tier I account and save funds regularly to accumulate a retirement corpus.


Then, when the account matures, when you turn 60 years old, you can withdraw a portion of the fund and invest the remaining in an annuity for a regular income. The investment made and returns will qualify for a tax deduction and tax exemption under the Income Tax laws. So, plan to invest smartly and ensure to accumulate the funds timely for securing your retirement while saving on tax. 


L&C/Advt/2022/Jul/1763

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TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA), Tata AIA Life Insurance is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

How To Open The NPS Tier I Account?


Before opening the NPS account, you should ensure to have a PAN card, Aadhar Card and a savings bank account.

You can open the NPS Tier I account either online or offline.

  •  If you choose the offline method, you can visit the nearest NPS Point of Presence office, receive the application form, fill in the necessary details, attach the documents, and submit the form.

  • If you choose the online method, visit the official website, navigate to the registration section, select the account type as NPS Tier I, provide the necessary details, upload the documents, make the initial payment of ₹ 500 and complete the registration process.

What Are The Documents Required To Open An NPS Account?

The important documents required to open an NPS account are:

  • Identity proof

  • Proof of birth

  • Address proof

  •  Duly filled registration form for the opening of the NPS Tier I account

Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

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