How many types of account in NPS?

There are two types of NPS accounts:

Tier-I account: 

 The investment in a Tier I NPS account is without any type of risk involved and comes with many benefits. Upon successful enrolment to the NPS, a Permanent Retirement Account Number which is called PRAN, is allotted to the subscriber. The subscriber contributes periodically towards NPS during their working life to create the corpus for retirement life. 

NPS Tier I is a tax-free investment exempted from tax at all stages of investment and return. The invested amount, interest earned on it and the total amount withdrawn at the end of the scheme is all tax free.  You can avail tax benefits of up to Rs.  2 lakhs investment in a NPS Tier I account. Upon retirement or exit from the scheme, the corpus is made available to the subscribers with the mandate that some portion of the corpus must be invested into annuity to provide a monthly pension post retirement or exit from the scheme. One can withdraw up to 60% of their total investment after the age of 60. This total 60% investment will be considered tax free.  An individual can prematurely withdraw their contribution from their NPS account after the completion of three years to up to 25% of the total sum deposited. This will be added to your annual income and taxed as per the slab of financial year in which withdrawal taken place.  This withdrawal can be done three times before the age of the scheme maturing and only for very important reasons that need to be declared before applying for withdrawal. 

Tier-II account: 

This is a voluntary withdrawable account which is allowed only when there is an active Tier I account in the name of the subscriber. The withdrawals are permitted from this account as per the needs of the subscriber as and when required. NPS Tier II is a pure investment plan and does not have tax benefits similar to the NPS Tier I plan.  You need to have a NPS Tier I plan first in order to start a NPS Tier II plan.   There are no compulsions to deposit any money on a yearly basis and no upper limit to the amount of contribution a subscriber may like to make.  Upon retirement or exit from the scheme, the corpus is made available to the subscriber for withdrawal, which is taxable and any money earned from this account will be added to the subscriber’s yearly taxable income. You can deposit or withdraw contributions made at your will whenever you want to. No penalty is imposed on withdrawals. Different types of investments reap different percentages of returns. For a NPS Tier II account, a subscriber is likely to earn interest in the range of:

Equity:  14% to 15%

Corporate bonds: 9% to 10%

Government securities: 7% to 8%