National Pension Scheme (NPS) Tier 2 is non-retirement NPS account. The private sector employees and self-employed individuals can invest in it on any business day. They can withdraw money on any business day, too, without stiff exit penalties or lock-in.
For the Government employees, in a press conference that was held on 10th December 2018, India's Finance Minister Aun Jaitley announced that the NPS Tier 2 Account is eligible for tax deduction under Section 80C up to Rs 1.5 lakh per annum. The NPS Tier 2 account will also have a lock-in of 3 years.
NPS Tier 1 is a retirement account. Being a primary NPS account, the individual can only open an NPS Tier 2 account after opening an NPS Tier 1 account.
To know the eligibility for NPS Tier 2 click here & to its premature closure withdrawal rules click here.
If the individual has an Aadhaar Card, PAN Card and bank account, it can open an NPS account online at enps.nsdl.com or enps.karvy.com and follow the steps described here. To open NPS account offline click here.
For NPS Tier 2, there are no minimum annual contributions and no maximum annual contributions. The minimum initial contribution is just Rs 1,000, and one can contribute online to NPS Tier 2 at enps.nsdl.com.
For government employees, NPS Tier 2 is eligible for tax deduction under Section 80C, but there is no clarity about how the gains in NPS Tier 2 will be taxed. The lock-in period for NPS Tier 2 account is three years. However, the Government hasn't still notified about the tax rules.
For private-sector employees, there is no tax deduction on NPS Tier 2, and the gains within it are also taxable at slab rate.