What is NPS? (National Pension System)
The National Pension System is a voluntary, long-term retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). NPS invests your contributions in a mix of equities, corporate bonds, and government securities, offering market-linked returns.
On retirement at 60, you can withdraw up to 60% of the corpus tax-free and must use at least 40% to purchase an annuity for a regular monthly pension.
NPS Account Types
Tier I Account: Mandatory, lock-in till 60, tax benefits available.
Tier II Account: Voluntary, no lock-in, no additional tax benefit.
Asset Classes: Equity (E), Corporate Bonds (C),
Government Securities (G), Alternate Assets (A)
Tax Benefits of NPS
- Up to ₹1.5 lakh under Section 80C (combined with other eligible investments).
- Additional ₹50,000 deduction exclusively under Section 80CCD(1B) — total possible benefit: ₹2 lakh.
- Employer contribution up to 10% of salary deductible under Section 80CCD(2).
- 60% lump-sum withdrawal at maturity is completely tax-free.
Who Should Consider NPS?
- Salaried individuals in the 20–30% tax bracket seeking additional deductions beyond 80C.
- Those wanting a structured pension plan with partial market-linked growth.
- Government employees for whom NPS is mandatory (Tier I).
