NPS Tier 1 and Tier 2 Account Differances

Tier 1 NPS Account

The first account is called Tier 1 NPS Account, and the Tier 1 Account is mandatory for all central government employees. It is mandatory for them to contribute 10% of their basic salary plus DA plus DP every month towards this account, and the government matches this contribution. 

•  it is necessary to invest 80% of your money in an annuity with Insurance Regulatory Development Authority (IRDA) if you withdraw before age 60. You can keep the remaining 20% with you.
• When you attain the age of 60, you have to invest at least 40% in an annuity with IRDA; the remaining can be withdrawn in lump-sum or in a phased manner.
• There is a minimum that you have to commit to investing in NPS, and for the Tier 1 account that minimum is Rs. 6,000 per year.

Tier 2 NPS Account

• You are free to withdraw your money from the Tier 2 account any time that you want without any penalties.
• Minimum amount for opening Tier 2 account is Rs. 1,000 and minimum balance required at the end of the year is Rs. 2,000. You need to make at least 4 contributions in a year.

1. there are no tax benefits to Tier-II account
2. Tier-II is optional and allows any number of withdrawals and is usually opened if you have surplus cash.
3. However, you cannot open a Tier-II account unless you have a Tier I account.