Since the Tier-I Account is the default account and aims to build the subscriber's retirement corpus, here an individual or his/her/their employer – be it a government, private, or public sector organisation (read: Government NPS and Corporate NPS) – can contribute.

However, only the subscriber, as an individual, contributes to the Tier-II Account.

NPS contributions are invested in four asset classes (equities, corporate bonds, government securities, and alternate investment funds) through two investment choices (active and auto). A subscriber may select different investment strategies for his/her/their Tier-I and Tier-II accounts.

As stated earlier, since the Tier-I Account aims to build a retirement corpus, the Pension Fund Regulatory and Development Authority (PFRDA) has set a cap on the equity exposure in the account, given the higher degree of market risk involved in this asset class. A subscriber cannot invest more than 75% of his/her/their Tier-I contributions in equities but can invest the entire amount in corporate bonds or government securities. As for the Tier-II NPS Account, there is no cap on equity exposure.

Moreover, in the Government and the Corporate sector models, the employer can select the investment strategy instead of an individual employee/subscriber, given that the employer also contributes to the Tier-I Account. But in the case of the Tier-II Account, which is seen as an investment account (not exclusively focussed on accumulating retirement corpus) and does not receive any contribution from the employer, the individual subscribers can select the investment strategy themselves.

And as mentioned earlier, a subscriber can select different Pension Fund Managers (PFMs) for the two accounts.

The tax benefits in NPS apply only to the Tier-I and not to the Tier-II Account.

Thus, tax benefits on contributions u/s 80C, 80CCD(1B), and 80CCD(2) of the Income Tax Act, 1961 are only for those made to the Tier-I Account. The same applies to the tax exemption on withdrawals and exits.

The Tier-I NPS Account allows conditional withdrawals for only reasons stated by the PFRDA. These are called Partial Withdrawals, and the amount withdrawn can be only up to 25% of the contributions made by the subscriber to date. This can be availed three times only, with at least a three-year gap between such withdrawals, and the first such withdrawal can be taken out after three years of the subscriber joining NPS.

As for the withdrawals from the Tier-II Account, there are no limits or conditions. The subscriber is free to take out any amount of money, anytime. This liquidity is an attractive attribute of this account type.

If the subscriber wishes, he/she/they can transfer the funds from the Tier-II Account to the Tier-I Account via the One-Way Switch facility. However, this transfer is irreversible as funds cannot be moved from Tier-I to Tier-II.