Which Is Better Nps Tier 1 Or Tier 2?

Which Is Better Nps Tier 1 Or Tier 2
How To Claim Tax Benefits for Tier 1 And Tier 2 If you’re keen on finding out how to claim the National Pension Scheme (NPS) tax benefits on your Tier I and Tier II accounts, this article is for you. NPS is a great tax-saving and long-term investment tool.

One of the prime advantages of retirement planning through NPS is that along with saving for your post-retirement years; you also get to enjoy tax benefits. Let’s take a close look at the NPS tax saving advantages. NPS is a government-sponsored scheme with the dual benefits of retirement planning and tax saving.

It is managed by the Pension Fund Regulatory and Development Authority (PFRDA). The primary objective of the is to aid investors in building a sizeable retirement corpus. Any citizen of India between 18 and 60 years of age can invest in NPS. There are two types of NPS accounts – Tier I and Tier II.

  • 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  • Tier I NPS investment is a long-term one and the amount cannot be withdrawn until retirement.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.Now that we have seen the difference between Tier I and Tier II NPS accounts, it’s time to explore the different NPS scheme tax benefits.

Under Section 80CCD (1) of the Income-Tax Act, NPS offers a tax exemption of up to Rs.1.5 lakh. In case a company provides an NPS facility, the employer’s contribution to NPS offers a tax rebate of up to 10% of the salary (basic plus DA) under Section 80CCD(2).For salaried individuals who have claimed tax exemption of Rs.1.5 lakh under Section 80C, NPS offers scope for additional tax savings.

Both salaried and self-employed NPS account holders with an investment of up to Rs.50,000 qualify for an additional tax exemption under Section 80CCD (1B) of the Income-Tax Act. However, this additional deduction under Section 80CCD (1B) applies only to Tier I NPS account holders. Unlike a Tier I NPS account, Tier II NPS accounts do not qualify for a tax rebate under Section 80C of the Income Tax Act.When it comes to NPS tax benefits, another point to remember is that the deduction under Section 80CCD (1) is available to both salaried individuals and non-salaried individuals.

See also:  Welche Tiere Gibt Es In Texas?

However, for salaried professionals, the maximum deduction allowed under Section 80CCD (1) is 10% of the salary for that year. On the other hand, for non-salaried individuals, it is 20% of their total gross income for that year.With this information of the NPS Income Tax benefit in your kitty, we are sure you will be able to grow your wealth and save on tax at the same time! Read more on the here.

Which is better option in NPS Tier 1 and Tier 2?

While Tier 1 account helps you to accumulate your retirement corpus and lower your tax outgo, Tier 2 works like a savings account, enabling you to meet the investment needs.

What is the benefit of NPS Tier 2?

NPS provides you two types of accounts: Tier I and Tier II. Tier I is mandatory retirement account, whereas Tier II is a voluntary saving Account associated with your PRAN. Tier II offers greater flexibility in terms of withdrawal, unlike Tier I account, you can withdraw from your Tier II account at any point of time.

What is the interest rate in NPS Tier 2?

NPS Tier II Returns

Asset Classes 1-Year Returns (%) 5-year Returns (%)
Class E 15.19%-17.92% 13.05%-15.83%
Class C 12.71%-16.36% 9.55%-10.17%
Class G 12.61%-13.42% 10.40%-12.00%

What is the interest rate in NPS Tier-1?

NPS Tier I Returns

Asset Classes 1-year Returns(%) 5-year Returns(%)
Equity 15.33%-18.81% 13.11%-15.72%
Corporate Bonds 12.46%-14.47% 9.27%-10.15%
Government Bonds 12.95%-14.26% 10.29%-10.88%
Alternative Assets 3.98%-16.73%

Is FD better than NPS?

Gautam Kalia, SVP and Head Super Investor at Sharekhan by BNP Paribas – The investor having National Pension System (NPS) Tier I account can invest in equity, debt and government securities. The auto choice option allocates between equity and debt automatically as per the age of the investor.

Which bank gives highest interest rate on NPS?

Interest Rates of NPS for Tier 1 Accounts

Pension Fund Companies Returns of 1 year (in %) Returns of 5 years (in %)
HDFC Pension Fund 9.56% 11.90%
ICICI Pension Fund 9.30% 11.12%
Kotak Mahindra Pension Fund 9.28% 11.12%
UTI Retirement Solutions 8.77% 11.85%

Is NPS Tier 2 tax saver?

Difference between NPS Tier 1 and Tier 2 Account – Following are the differences between NPS Tier 1 and Tier 2 account :

Basis of Difference NPS Tier I Account NPS Tier II Account
Eligibility Indian citizens between 18 years and 65 years Members of tier I account only
Lock-in period Till the subscriber is 60 years old Nil
Minimum number of contributions per financial year 1 Nil, the subscriber can choose not to make any contribution in a year. Nor do they have the need to maintain a balance in the account.
Account opening contribution INR 500 INR 1,000
Minimum subsequent contribution INR 1,000 INR 250
Tax Benefits on the contribution Contributions up to Rs 1.5 lakhs in a financial year qualify for tax deduction under Section 80C of the IT Act, 1961. An additional contribution up to INR 50,000 also qualifies for tax deduction under Section 80CCD (1B) of the Income Tax Act, 1961. No tax benefit
Tax on withdrawals On maturity, the entire corpus is tax-exempt. The amount is added to the investor’s taxable income and is taxed as per the applicable tax rates.
Limit on withdrawals 60% of the corpus can be withdrawn in a lump sum. The remaining 40% has to be used to purchase an annuity plan. The entire corpus can be withdrawn as a lump sum, or in multiple redemptions without any limit.
Transfer of Funds Funds from Tier 2 can be transferred to Tier 1 accounts. Also, existing funds from EPF can be transferred to Tier I accounts. Fund cannot be transferred.
See also:  Welche Tiere Gibt Es Auf Hawaii?

Discover More

Which NPS has highest returns?

Best Performing NPS Tier-I Returns 2023 – Scheme E –

Pension Fund Managers Returns (as of 31st Jan 2023)
1-year 3-year 5-year
SBI Pension Fund 2.44% 14.05% 9.65%
LIC Pension Fund 4.37% 15.27% 9.64%
UTI Retirement Solutions 3.15% 14.70% 9.83%
ICICI Prudential Pension Fund 2.48% 14.72% 9.99%
Kotak Mahindra Pension Fund 2.96% 15.05% 10.21%
HDFC Pension Management 3.00% 14.93% 10.82%
Aditya Birla Sunlife Pension Management 2.83% 13.93% 9.83%

Note: The returns for Tata Pension Fund, Max Life Pension Fund and Axis Pension Fund are not available since they were launched in August 2022, September 2022 and October 2022, respectively.

Which scheme is best for Tier 2 NPS?

Which Is Better Nps Tier 1 Or Tier 2 India’s National Pension Scheme (NPS) Tier 2 account offers a choice between 8 different pension fund managers. It does not have tax benefits or a lock-in for private sector subscribers. For government employees, it has a 3 year lock-in and tax benefits under Section 80C of the Income Tax Act.

In case of NPS tier 2 investments across different asset classes, the returns vary between different pension fund managers as well as among different asset classes however you are required to choose the same one for all fund categories. This means that you are not allowed to pick separate fund managers for the equity, corporate bond and government bond portions of the portfolio.

With this is mind, we calculated the long term returns (5 year returns) offered by different pension funds for NPS tier 2 investments and found that UTI Retirement Solutions came out on top in case of various representative portfolios. These 5 year calculations are relevant considering that typically NPS is a long-term investment.

What is the interest rate of NPS Tier 2?

Interest Rates of NPS for Tier 2 Accounts – The below table illustrates the interest rates of NPS Tier 2- top-performing equity pension fund managers in 2023-2024.

Pension Fund Companies Returns of 1 year (in %) Returns of 2 years (in %) Returns of 5 years (in %)
Reliance Pension Fund 8.94% 12.08% 10.32%
HDFC Pension Fund 9.47% 14.87% 11.50%
ICICI Pension Fund 9.32% 13.16% 11.14%
Kotak Mahindra Pension Fund 9.54% 13.03% 11.12%
UTI Retirement Solutions 9.39% 13.66% 11.96%
LIC Pension Fund 8.51% 11.74% 8.97%
Aditya Birla Pension Fund 6.61%
SBI Pension Fund 9.71% 13.50% 11.39%

Hence, the top-performing NPS Tier-2 Equity Funds and their highest returns are mentioned as follows:

Term of the Plan (in Years) Name of the Pension Fund Highest Return (in %)
1- Year SBI Pension Fund 9.71% p.a.
3- Year HDFC Pension Fund 14.87% p.a.
5- Year UTI Retirement Solutions 11.96% p.a.

What is the return of NPS Tier II?

The NPS Tier 2 account offers access to four asset classes: alternative investment funds, corporate bonds, government securities, and stock. Historical average returns are in the range of 9% to 12%.

What is the return on NPS Tier 2 account?

Returns on NPS Tier 2 – 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.