• Login/Sign Up
  • Request a Call Back

    National Pension Scheme Tier 1

    • 5 min read
    • Last Modified Date: January 5, 2024
    Listen to the article
    facebook twitter linkdin whatsapp

    The National Pension Scheme Tier-1 Account represents the most fundamental type of pension fund account provided by GOI.  The govt plan aims to meet the retirement demands of private and public sector workers. To provide a framework for the use of NPS, the govt has divided it into two separate tiers: Tier 1 & Tier 2. The National Pension Program (NPS) is a national pension scheme that attempts to meet employees’ retirement needs in private and public industries.

    Read NPS Vs PPF: Comparison, Return Rates & Which is Better.

    Tier 1 NPS Account Aspects

    The following are a few major features of the Tier 1 NPS Account that distinguish it from the NPS Tier 2 account.

    • Tier 1 NPS Account constitutes the most fundamental type of pension account.
    • Early withdrawals from the Tier 1 NPS Account are permitted, but only like reimbursable advances and only after the investor has served for fifteen years. These withdrawals are permitted only in an unanticipated event, such as a catastrophic sickness or a crisis.
    • Investors who have achieved 25+ years of work can additionally receive up to 50 percent of their investment.
    • Tier 1 NPS account is a plan in which NPS invests primarily in corporate and government bonds.
    • Tier 1 NPS account is a plan in which NPS invests primarily in corporations and government bonds.
    • Tier 1 NPS for non-government companies invests primarily in equities, corporate and government bonds, FDs, and liquid funds.
    • Tier 1 government programs compel you to contribute 10 percent of your base wage + dearness allowance each year. The government contributes the very same rate.
    • Tier 1 private industry programs need an annual investment of at least 6k rupees, with a monthly bare minimum of 500 rupees.
    • NPS funds can be retrieved for the goal of buying or developing your first home.
    • The NPS Tier 1 Account can be administered from any location in the country, regardless of employer or employment location.
    • NPS users can switch from privatized to public entities while keeping the very same NPS account.
    • Every NPS Tier 1 Account subscriber is given a 12-digit Permanent Retirement Account Number (PRAN). If your PRAN Card has been lost or stolen, you can have it reissued for a small charge.
    • Individuals may only have 1 NPS account.

    NPS Tier 1 Account Eligibility Requirements

    • Every Indian citizen, non-resident or resident, can enroll in the National Pension System.
    • Individuals must be between the ages of 18 and 60 at the moment the NPS form is submitted.
    • Indians who are non-residents can also sign up for the NPS initiative.

    Documentation Needed to Open an NPS Tier 1 Account

    Several pieces of documentation must be presented in addition to the opening form of the NPS Account.

    • Completed form of registration
    • The ID of the applicant
    • Verification of individual’s residence
    • Evidence of the individual’s age or DOB

    Investments in the NPS Tier 1 Account Are Taxed

    The amount of ambiguity about the taxes rules that pertain to NPS Tier 1 Accounts is significant. Nevertheless, below is a summary of NPS tax advantages that pertain to NPS Tier 1 Account participants.

    • Salary earners are eligible for a tax break

    Employee contributions are tax deductible up to 10 percent of pay (Basic + DA). This is covered by IT Act Section 80CCD and has a yearly maximum of Rs. 1 lakh. Employees are also entitled to deductions on the value of the NPS contributions by the employer. The employer contributes 10 percent of the wage (Basic + DA). It has a maximum of Rs.1 lakh and is governed by IT  Act Section 80CCC.

    • Individuals who work for themselves are eligible for a tax break

    Tax relief of up to 10 percent of their gross pay, subject to a ceiling of INR 1 lakh per year. It is per IT Act Section 80CCD.

    Read Tax saving schemes.

    NPS Tier 1 Account Withdrawal Procedure

    There may be times when an enrolled individual wishes to withdraw from the NPS tier 1 Account. It is accomplished by submitting and filling out a form for withdrawal. NPS calculators determine how much pension an individual is expected to get. Below is a summary of the documentation that is necessary.

    • An authority-issued PRAN Card.
    • Confirmed replicate proof of cardholder’s ID like Aadhar Card, Voter ID Card, etc.
    • Confirmed copies of cardholder’s proof of address like Aadhar Card, Driving License, etc.

    Lock-up Period for NPS Tier 1

    The NPS Tier 1 account has a lock-up period of 60 years. But, one may depart the scheme before the age of 60, according to the restrictions and circumstances.

    Returns From Tier 1

    The returns from NPS Tier 1 are generated by investment in the 4 asset classes of NPS: stocks, govt. bonds, alternative/unconventional assets, and corporate debt. One can divide these as one prefers, limited to a 75 percent restriction on equity stake and a 5 percent restriction on alternative assets. One  is free to choose. One  may also choose one of eight NPS pension money managers. UTI, SBI, Aditya Birla, LIC, Kotak, Reliance Capital, HDFC, and ICICI Prudential are among them. The returns from NPS are thus more analogous to returns from mutual funds than to the fixed rates provided by savings plans such as PPF. The following are the historical NPS Pension Funds returns:

    • NPS Tier 1 (Equity) Returns on 30th September 2019

    Pension Fund1 Year Return3 Year Return5 Year ReturnReturns since Inception
    BIRLA PF4.80%NANA8.73%
    HDFC PF6.67%10.97%9.11%13.89%
    ICICI PF4.21%9.26%8.00%10.98%
    KOTAK PF7.19%9.79%8.50%10.27%
    LIC PF2.26%7.73%6.83%10.79%
    SBI PF3.94%9.16%8.18%9.31%
    UTI PF4.44%9.44%8.51%10.98%
    Average 4.78%8.05%7.01%10.70%
    • NPS Tier 1 (Corporate Bonds) Returns on 30 September 2019

    Pension Fund1 Year Return3 Year Return5 Year ReturnReturns Since Inception
    BIRLA PF15.00%NANA9.88%
    HDFC PF14.92%8.10%10.13%10.42%
    ICICI PF14.43%8.19%10.38%10.58%
    KOTAK PF12.95%7.29%9.69%10.29%
    LIC PF14.51%7.56%9.84%10.21%
    SBI PF14.39%8.01%9.99%10.57%
    UTI PF12.63%7.18%9.39%9.29%
    Average 14.11%6.61%8.48%10.17%
    • NPS Tier 1 (Government Bonds) Returns on 30th September 2019

    Pension Fund1 Year Return3 Year Return5 Year ReturnReturns Since Inception
    BIRLA PF18.26%NANA9.07%
    HDFC PF18.48%7.67%10.65%10.34%
    ICICI PF18.08%7.63%10.71%9.13%
    KOTAK PF18.97%7.69%10.78%9.08%
    LIC PF21.02%9.46%11.69%11.69%
    SBI PF18.42%7.87%10.90%9.93%
    UTI PF18.21%7.39%10.38%8.83%
    Average `18.77%6.81%9.30%9.72%
    • NPS Tier 1 (Alternative Assets) Returns on 30th September 2019

    Pension Fund1 Year Return3 Year Return5 Year ReturnReturns Since Inception
    BIRLA PF7.32%NANA7.09%
    HDFC PF12.74%NANA8.40%
    ICICI PF13.32%NANA7.99%
    KOTAK PF16.19%NANA7.69%
    LIC PF10.41%NANA7.78%
    SBI PF11.48%NANA8.15%
    UTI PF7.26%NANA6.98%
    Average 11.24%NANA7.72%

    Conclusion

    Yes, National Pension System Tier 1 is a national pension scheme that attempts to meet employees’ retirement needs in private and public industries.

    But do you know what is an even better investment for your retirement? Real estate is a fantastic investment for your senior years since it provides additional income through rental income and capital gain. However, as we all know, a rental home is not a completely passive investment. Residential income property ownership is not a hands-off endeavor. So, if you don’t want to or are unable to maintain the property because you reside out of town, you may easily invest in commercial real estate with the aid of a real estate platform like Assetmonk. And Assetmonk brings you good news. What news, you ask? Well, you and your mates can invest in crore-valued commercial properties with just INR 25 lacs via Assetmonk’s fractional ownership investment opportunity.

    HOW CAN YOU MANAGE YOUR WEALTH
    WITHOUT THE RIGHT FINANCIAL INFORMATION?
    Sign up for smart insights from industry experts!
    mail-logo
    whatsapp_logo
    Invest Now