What is NPS and who can invest in it?

NPS (National Pension System) is a voluntary, long-term retirement savings scheme regulated by PFRDA. It is open to all Indian citizens aged 18–70, including salaried employees (government and private sector), self-employed professionals, and NRIs. Contributions grow market-linked and the corpus is used to buy an annuity at retirement.

What is the tax benefit on NPS contributions?

NPS offers three layers of tax deduction under the Old Regime: (1) Section 80CCD(1) — up to 10% of salary (max ₹1.5L within 80C limit) for employee contribution; (2) Section 80CCD(1B) — additional ₹50,000 exclusively for NPS, over and above the 80C limit; (3) Section 80CCD(2) — employer NPS contribution up to 14% of salary for all employees (both govt and private, effective FY 2025-26) is fully deductible with no upper cap, and is also allowed under the New Tax Regime.

What happens to NPS corpus at retirement?

Under PFRDA's December 2025 rules, non-government subscribers with corpus above ₹12 lakh can withdraw up to 80% as a lump sum and must put at least 20% into an annuity for monthly pension. However, the Income Tax Act currently exempts only 60% of the total corpus as tax-free under Section 10(12A). The extra 20% lump sum is taxable at your slab rate until the IT Act is amended. If total corpus is ₹8 lakh or less, you can withdraw 100%. Deferral is allowed till age 85. Annuity income is always taxable.

What are the asset allocation options in NPS?

NPS offers two approaches: Active Choice (you decide the allocation across Equity/E, Corporate Bonds/C, Government Securities/G, and Alternative Assets/A — equity capped at 75% up to age 50, then reduces by 2.5% per year) and Auto Choice (Lifecycle Fund — aggressive, moderate, or conservative — automatically rebalances with age). The expected return depends on your allocation.

What is the minimum contribution for NPS?

For NPS Tier 1, the minimum contribution at account opening is ₹500, minimum per contribution is ₹500, and minimum per year is ₹1,000. For NPS Tier 2, the minimum at account opening is ₹1,000 and minimum per contribution is ₹250. There is no maximum contribution limit — you can invest as much as you want.

Can I partially withdraw from NPS before retirement?

Yes. Partial withdrawals from NPS Tier 1 are allowed after 3 years of account opening for specific purposes: higher education or marriage of children, purchase or construction of a house, treatment of critical illness, disability, skill development, or settling a loan against your NPS account. You can withdraw up to 25% of your own contributions (not employer contributions). Under PFRDA's December 2025 rules, up to 4 partial withdrawals are allowed before age 60 (once every 4 years), and unlimited withdrawals after 60 (once every 3 years).

NPS Calculator – National Pension Scheme Returns & Corpus

Account Type

Investment Details

Monthly Contribution₹5,000

Current Age30 years

Retirement Age60 years

Expected Annual Return10%

Annuity Rate Pension %6%

Tax Savings (Old Regime · Tier 1 only)

Enter annual amounts for tax calculation

Annual Salary (Basic + DA)

Income Tax Slab Rate

Employer NPS Contribution % Max 14%

Already used 80C limit?

Total Corpus at Retirement

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Investment period — yrs

Total invested —

Wealth Gained: ₹0 | Returns: 0×

Total Invested (Principal)₹0

Returns Earned₹0

Total Corpus₹0

🏦 Lump Sum (80% · PFRDA 2025)₹0

↳ Tax-free portion (60% of corpus)₹0

↳ Taxable portion (20% · IT Act pending)₹0

📋 Annuity Purchase (min 20%)₹0

20% Annuity

80% Lump Sum

📅 Est. Monthly Pension₹0

Based on 6% annuity rate on 20% corpus · Pension income taxable at slab rate

💸 Annual Tax Savings

80CCD(1) — Employee

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10% of salary · within 80C

80CCD(1B) — Extra NPS

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Up to ₹50,000 · Over 80C

80CCD(2) — Employer

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Also in New Regime

Total Annual Tax Saved ₹0

📊 Suggested Asset Allocation

📅 Year-by-Year Corpus Growth Tier 1 · Compounding annually

Year	Age	Annual Contribution	Total Invested	Corpus Value

🔒 NPS Tier 1 — Key Rules

Min. contribution/year: ₹1,000
Lock-in: Till age 60
Lump sum (non-govt, corpus >₹12L): Up to 80%
Tax-free lump sum: 60% of corpus (IT Act)
Taxable lump sum: Extra 20% (IT Act pending)
Annuity (mandatory, non-govt): Min 20% of corpus
Full withdrawal if corpus ≤: ₹8 lakh
Partial withdrawal: Up to 25% · 4 times before 60
Deferral allowed till: Age 85
80CCD(1B) extra deduction: ₹50,000/year

💼 NPS Tier 2 — Key Rules

Min. contribution: ₹250
Lock-in: None (fully flexible)
Withdrawal: Any time, any amount
Tax benefit: None (general public)
Central Govt employees: 3-yr lock-in, 80C benefit
Returns: Same as Tier 1 funds

On this page

What is NPS?
NPS Tax Benefits
Tier 1 vs Tier 2
Withdrawal Rules
NPS vs PPF
How to Open NPS
FAQ

What is NPS (National Pension System)?

The National Pension System (NPS) is a voluntary, long-term retirement savings scheme launched by the Government of India and regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It was introduced for Central Government employees in 2004 and opened to all Indian citizens in 2009. NPS invests your contributions in a mix of equities, corporate bonds, and government securities, offering market-linked returns that are typically higher than traditional pension schemes.

Any Indian citizen between 18 and 70 years of age can open an NPS account. NRIs are also eligible to invest in NPS, though OCI/PIO card holders are not. The minimum annual contribution for Tier 1 is ₹1,000, with no upper limit — making it accessible to a wide range of investors from salaried employees to self-employed professionals.

NPS Tax Benefits — Three Layers of Deduction

NPS offers one of the most powerful tax-saving structures available in India, especially under the Old Tax Regime. There are three distinct sections under which you can claim deductions:

Section	Who Benefits	Deduction Limit	Regime
80CCD(1)	Employee's own contribution	10% of Basic+DA · Within ₹1.5L (80C)	Old Regime only
80CCD(1B)	Employee's own contribution (extra)	₹50,000 · Over and above 80C	Old Regime only
80CCD(2)	Employer's NPS contribution	14% of salary (Govt) / 10% (Private) · No cap	Both Old & New Regime ✅

The 80CCD(2) deduction for employer contributions is particularly powerful — it is available even under the New Tax Regime with no upper limit, making NPS one of the few instruments that provides tax benefits in both regimes.

NPS Tier 1 vs Tier 2 — Comparison

Feature	Tier 1 (Pension Account)	Tier 2 (Savings Account)
Purpose	Retirement savings	Voluntary savings
Minimum to open	₹500	₹1,000 (Tier 1 must exist)
Minimum annual contribution	₹1,000	No minimum
Lock-in period	Till age 60	None
Withdrawals	25% partial (after 3 yrs, specific reasons)	Anytime, any amount
Tax deduction	80CCD(1), 80CCD(1B), 80CCD(2)	None (except Central Govt employees)
Best for	Retirement planning + tax saving	Flexible medium-term savings

NPS Withdrawal Rules at Retirement (Age 60)

At retirement, you have the following options for your NPS corpus:

Situation	Lump Sum	Annuity	Tax
Non-govt, corpus > ₹12L (PFRDA 2025)	Up to 80%	Min 20%	60% tax-free · Extra 20% taxable (IT Act)
Non-govt, corpus ₹8L–₹12L	Up to ₹6L lump sum	Balance via annuity or SUR (6 yrs min)	60% of total corpus tax-free
Corpus ≤ ₹8 lakh	100% withdrawal allowed	Not mandatory	Fully tax-free
Govt employees (normal exit)	Up to 60%	Min 40%	60% tax-free
Deferral option	Stay invested till age 85	Defer annuity purchase	No tax on deferral
Premature exit (before 60)	Up to 20% lump sum	Min 80% for annuity	Lump sum taxable

NPS vs PPF — Which is Better for Retirement?

Parameter	NPS	PPF
Returns	10–12% (market-linked, equity)	7.1% (government fixed)
Risk	Market risk (equity portion)	No risk (government backed)
Lock-in	Till age 60	15 years (extendable)
Tax on maturity	60% tax-free · 20% taxable lump sum · 20% annuity (taxable income)	100% tax-free (EEE)
Extra deduction	₹50,000 via 80CCD(1B)	Within 80C ₹1.5L limit
Pension income	Yes (annuity)	No
Best for	Higher growth + pension income seekers	Risk-free, fully tax-free corpus

How to Open an NPS Account

You can open an NPS account online through the eNPS portal (enps.nsdl.com) or through any Point of Presence (POP) — which includes major banks like SBI, HDFC, ICICI, Axis, and others. For online registration, you need your PAN card, Aadhaar (for e-KYC), bank account details, and a PRAN (Permanent Retirement Account Number) will be issued instantly. The process takes under 20 minutes. Once registered, you can make contributions online via net banking, UPI, or debit card.

Frequently Asked Questions

NPS (National Pension System) is a voluntary, long-term retirement savings scheme regulated by PFRDA. It is open to all Indian citizens aged 18–70, including salaried employees, self-employed professionals, and NRIs. Contributions grow market-linked and the corpus is used to buy an annuity at retirement for regular pension income.

NPS offers three deduction layers: (1) Section 80CCD(1) — up to 10% of salary within the ₹1.5L 80C limit. (2) Section 80CCD(1B) — additional ₹50,000 exclusively for NPS, over and above 80C. (3) Section 80CCD(2) — employer NPS contribution up to 14% of salary for all employees (both govt and private, effective FY 2025-26) is fully deductible with no upper cap, available even under the New Tax Regime.

Under PFRDA's December 2025 rules, non-government subscribers with corpus above ₹12 lakh can withdraw up to 80% as a lump sum and must put at least 20% into an annuity for monthly pension. However, the Income Tax Act currently exempts only 60% of the corpus as tax-free under Section 10(12A) — the extra 20% lump sum is taxable at slab rates until the IT Act is amended. If total corpus is ₹8 lakh or less, the full 100% can be withdrawn. You can also defer withdrawal till age 85. Annuity income is always taxable at your slab rate.

Tier 1 is the mandatory pension account with lock-in until age 60 and full tax benefits under 80CCD. Tier 2 is a voluntary savings account with no lock-in and full withdrawal flexibility, but offers no tax deduction for general investors. Tier 1 must be opened before Tier 2.

NPS offers two approaches: Active Choice (you decide allocation across Equity/E, Corporate Bonds/C, Government Securities/G, and Alternative Assets/A — equity capped at 75% up to age 50) and Auto Choice (Lifecycle Fund — aggressive, moderate, or conservative — automatically rebalances with age).

NPS typically offers higher returns (10–12% for equity-heavy portfolios) vs PPF's fixed 7.1%, but NPS has market risk and mandatory annuity purchase at retirement. PPF is fully tax-free on maturity (EEE), while only 60% of NPS corpus is tax-free. NPS suits those seeking higher growth and pension income; PPF suits conservative investors wanting guaranteed, fully tax-free returns.

For NPS Tier 1: minimum at account opening is ₹500, minimum per contribution is ₹500, and minimum per year is ₹1,000. For Tier 2: minimum at account opening is ₹1,000 and minimum per contribution is ₹250. There is no maximum limit — you can invest as much as you want.

Yes. Partial withdrawals from Tier 1 are allowed after 3 years for specific purposes: higher education or marriage of children, purchase or construction of a house, treatment of critical illness, disability, skill development, or settling a loan taken against your NPS account. You can withdraw up to 25% of your own contributions (not employer contributions). Under the updated PFRDA December 2025 rules, you can make up to 4 partial withdrawals before age 60 (once every 4 years), and unlimited withdrawals after 60 (once every 3 years).