Home >Money >Personal Finance >NPS Tier II Account can be operated like savings account, without cheque book

Tier II Account in National Pension System (NPS) is an add-on account which provides you the flexibility to invest and withdraw from various schemes available in NPS without any exit load. While, Tier I Account of NPS has a lock in till 60 years of your age unless you extend it, there is no lock in period for Tier II account. Investment experts believe investors can use Tier II Account of NPS as a substitute of bank's savings account.

"The NPS tier II account can be operated like a saving account without a cheque book but you will have to pay transaction charges for each transaction.," says Balwant Jain, investment and tax expert.

Investors cannot open NPS Tier II Account without having the NPS Tier I Account.

The contribution made towards NPS Tier II Account is not eligible for any taxation benefits, unless you are a central government employee and have claimed deduction under Section 80C for contribution made towards Tier II account in which case the money so deposited will have a lock in of three years.

NPS Tier II subscribers are allowed to select any fund manager within the NPS. Currently there are eight fund managers including SBI, UTI, LIC, HDFC, ICICI, Kotak, Reliance and Aditya Birla Sun Life Pension Fund.

There is no minimum balance requirement or minimum annual contribution for NPS Tier 2 account.

As far as taxation of withdrawals from NPS Tier II Account are concerned, the regulator does not provide a clear cut provision. However, the experts be;lieve only the gains on withdrawals will be taxable.

"In my opinion the same should be taxed like your debt mutual fund where the profits are taxed as long term with indexation, if held for more than 36 months and as short term in case redeemed within 36 months. Please note that it is the profits and not the entire withdrawal which is taxable," says Balwant Jain.

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