Planning to INVEST in NPS – What is Tier 1 Account? Know eligibility, interest rate, features, tax benefits and more

National Pension System (NPS) is a government offered retirement-cum pension scheme. By investing in NPS, the investors get the dual benefit of tax-saving and retirement planning. Contribution towards an NPS account provides a benefit to individuals by way of a deduction under Section 80C. Not just it secures your retirement planning, but it also saves taxes of up to Rs 1,50,000 a year. The best part is both private and government employees can invest in this retirement planning scheme. 

Eligibility 

NPS Tier 1 account is the most basic form of NPS, and it has various forms such as NPS (State Government), NPS (Central Government), NPS (Corporate), and NPS (Citizens). Each works differently, but some rules are common for all. Anyone in the group of 18-65 years can invest in this. The minimum amount to invest in their NPS account is Rs 1,000. 

Features & Tax Benefits 

A person can get an additional tax deduction of Rs 50,000 under Section 80CCD(1B).  He can claim a tax deduction of up to 20 per cent of his salary contributed towards NPS. Interestingly, the returns earned on NPS are exempted from taxation. The account is matured once the investor retires or attains the age of 60 years. On maturity, the person can withdraw up to 60 per cent of the amount accumulated in the account while the rest 40 per cent is used to purchase an annuity plan. 

Interest Rate

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Unlike Public Provident Fund (PPF), Employees' Provident Fund (EPF), Voluntary Provident Fund (VPF), the returns on NPS are not fixed. The returns are completely market-driven and dependent upon your fund manager's performance and the asset mix that you select.