What is NPS tier 1 account? Know details related to investment, returns, tax benefits and regular income

If you want financial security in life and a good life after retirement, then retirement planning is very important. National Pension Scheme Tier 1 account (NPS tier 1 account) is a popular option for creating a retirement fund in India. NPS Tier 1 account is a long term investment scheme backed by the Government of India. In this, you can create a retirement corpus through locked-in contributions till the age of 60 years. This scheme provides you regular income after retirement. The contribution made in this scheme remains locked till the age of 60 years. However, partial withdrawal facility is also available in certain special circumstances.

Where is your money invested?

The money invested in NPS Tier 1 account goes to the Pension Fund Regulatory and Development Authority i.e. PFRDA. It is the nodal agency that oversees the NPS in India. After this PFRDA allots your funds to different fund managers. These fund managers invest this amount in a diversified portfolio of assets based on the investment scheme you choose.

Ability to give higher returns than PPF

The returns you get on your NPS Tier 1 account depend on the fund you choose and overall market conditions. However, NPS has the potential to offer higher returns than traditional pension plans like PPF. Because it also invests some part of your funds in shares.

These are some special features of NPS Tier 1 account:

• All Indian citizens between the age of 18 to 65 years can open an account in NPS Tier 1 account. NRIs can also participate in this scheme.
• The minimum annual contribution in NPS Tier 1 account is Rs 1000. At the same time, there is no upper limit. You can invest any amount of money in this scheme. You can invest in this scheme on monthly, quarterly, half yearly or yearly basis.
• Investments in NPS Tier 1 account are eligible for tax deduction under Section 80C of the Income Tax Act. Tax deduction can be claimed on Rs 1.5 lakh invested annually here. At the same time, an additional deduction of Rs 50,000 can also be claimed under section 80CCD (1B) for investments made by salaried employees.
• Returns in NPS Tier 1 account depend on the performance of the fund and asset allocation chosen by the investor. This scheme offers a mix of equity and debt funds. You can choose your investment according to your risk capacity.
• On reaching the age of 60 years, you can withdraw 60 percent of the fund, it will be tax free. The remaining 40 percent will be used to purchase an annuity from an IRDA regulated life insurance company. This annuity will provide you regular monthly income for the remaining life.