National Pension System (NPS)
The NPS is a market-linked retirement savings platform regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Launched for central government employees in 2004, it was extended to all Indian citizens in 2009.
Account Types
Tier I: The primary pension account with restrictions on withdrawals. Contributions qualify for tax deductions. Minimum annual contribution of ₹1,000 required.
Tier II: A voluntary savings account linked to Tier I with no lock-in for most subscribers and no specific tax benefits for non-government employees.
Tax Benefits
- •Section 80CCD(1): Deduction up to 10% of salary (20% for self-employed), within the overall ₹1,50,000 limit under 80CCE.
- •Section 80CCD(1B): An additional ₹50,000 deduction over and above the ₹1.5 lakh cap.
- •Section 80CCD(2): Employer contributions up to 10% of salary (14% for central govt) deductible with no upper cap.
Fund Allocation
NPS investments are allocated across four asset classes: E (Equity), C (Corporate Bonds), G (Government Securities), A (Alternative Assets). Subscribers choose between Active Choice (self-directed) and Auto Choice (lifecycle-based, reducing equity with age).
Withdrawal Rules
At retirement (age 60), a minimum of 40% of the corpus must purchase an annuity from a PFRDA-empanelled insurer. Up to 60% may be withdrawn as a tax-exempt lump sum. Premature exit before 60 requires at least 80% annuitisation. Partial withdrawals for specific purposes are permitted after 3 years.