NPS (National Pension System)

The National Pension System (NPS) is a government-backed retirement savings scheme. It is designed to help individuals create a financial cushion for their old age. It allows citizens to contribute regularly during their working years and access the accumulated corpus after retirement, as a mix of lump sum withdrawal and annuity. With its different investment options and regulated structure, NPS can be a solid choice for retirement planning in India.
Take a look at what NPS is, its objectives, benefits and features, and more.

Retirement Income

Flexible Premiums

Joint Coverage

Purchase Price Return

Critical Illness Cover

Lifetime Income

What is the National Pension Scheme?

Formally known as the National Pension System, the National Pension Scheme (NPS) was introduced in 2004 for government employees. It was later extended to all citizens in 2009. It is a voluntary, long-term retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

When you create an NPS account, you have to make regular contributions. These contributions are invested in a mix of asset classes, including equity, government securities, and corporate bonds. When you reach retirement, a part of the NPS corpus can be withdrawn as a lump sum. The rest is used to buy an annuity from NPS, in order to ensure a regular pension income for retirees.

What sets the NPS scheme apart from others is its flexibility, transparency, and cost-efficiency. These features make it an accessible and affordable avenue to save for retirement.

Equity Allocation Rules

NPS gives subscribers the flexibility to allocate their contributions across different asset classes - including equity, corporate bonds, and government securities.
However, to balance risk and long-term stability, there are certain restrictions on equity exposure in the NPS scheme.
For investors under the age of 50, the maximum equity allocation allowed is capped at 75%.
The equity exposure for NPS also depends on the type of investment allocation you have opted for: Active Choice or Auto Choice. In the former option, you can choose where to place your funds, and in the latter, your investments are decided based on age. Older individuals are allocated more stable options (i.e. less equity exposure).

Eligibility

Basics of NPS

NPS Tax Benefits

Who is eligible for the NPS scheme?

Answer: Any Indian citizen between the ages of 18 and 70 can open an NPS account, provided they comply with the KYC process - including salaried employees, self-employed individuals, and even NRIs. Hindu Undivided Families (HUFs) cannot participate. By meeting the basic criteria, individuals can start building long-term savings under the NPS scheme.

Is there NPS for private sector employees?

Answer: Yes, private sector employees can also join the National Pension Scheme. Many companies offer NPS as part of their benefits package. Employees can also open accounts individually if their employer does not provide this option.

What are Tier 1 and Tier 2 NPS accounts?

Answer

A NPS Tier 1 account is the default and mandatory account in the NPS pension scheme, designed primarily for retirement savings. Withdrawals under this NPS account are restricted until age 60, although up to 25% partial withdrawals are allowed for reasons like higher education, children’s marriage, housing, or treatment of illness. Tier 1 also offers tax benefits under Section 80C and Section 80CCD.

The NPS Tier 2 account is optional and works more like a savings account. Subscribers can withdraw money freely at any time. To make an NPS investment in Tier 2, one must already have an active Tier 1 account. While Tier 2 offers flexibility, it does not provide tax benefits. Understanding NPS Tier 1 vs NPS Tier 2 helps investors balance long-term savings and short-term liquidity.

Is it good to invest in NPS?

Answer: Yes, NPS is considered a good option for retirement planning because it combines equity, debt, and government securities. It provides both growth and stability. It also comes with tax benefits, making it a cost-effective way to build a pension corpus.

What is the NPS interest rate?

Answer: NPS does not have a fixed interest rate because returns are market-linked. The performance depends on the asset allocation chosen: equities, corporate bonds, government securities, and alternative funds. Historically, returns have ranged between 8–10% annually, though this may vary. Past performance is not indicative of future results.

Do I earn a fixed return on NPS?

Answer: No, your NPS account will not offer fixed returns. Since it is a market-linked product, your returns will depend on the performance of the underlying assets and fund managers.

Will the Government contribute to my NPS account?

Answer: No, under the regular NPS model, the government does not directly contribute to your account. However, if you are a central or state government employee, your employer (government) contributes an equal amount to your account as per the NPS scheme details. For private citizens or corporate subscribers, contributions come from the individual and possibly their employer.

Is NPS tax-free on maturity? **

Answer: The NPS pension scheme is partially tax-efficient while providing a regular income after retirement. At maturity, 60% of the accumulated NPS corpus can be withdrawn, and this portion is tax-free. The remaining 40% must be used to purchase an annuity, and the income received from the annuity is taxable as per the subscriber’s income tax slab.

Will I get tax benefits on investments in an NPS Tier-II account? **

Answer: Investments in NPS Tier-II accounts are eligible for deductions (up to ₹1.5 lakhs under Section 80C in the old regime) only if the account has completed the lock-in period of 3 years. Many of the tax benefits available for NPS Tier 1 subscribers are not allowed for Tier 2 account holders.

How does NPS annuity income get taxed? **

Answer

The income received from an annuity plan purchased with your NPS corpus is taxable. It is added to your total income and taxed according to the applicable income tax slab. While withdrawals from your NPS account at maturity are partly tax-free, annuity payouts are treated as regular income.

** Tax exemptions are as per applicable tax laws from time to time.

Feature	NPS Tier I Account (Compulsory)	NPS Tier II Account (Voluntary)
Purpose	Long-term retirement savings	Flexible savings with easy withdrawals
Withdrawals	Restricted till 60; partial (25%) allowed for critical cases	Unlimited, anytime withdrawals
Tax Benefits**	Eligible for tax deductions under Section 80C and Section 80CCD	Limited tax benefits, subject to completion of the lock-in period
Minimum Contribution	₹500 per contribution, ₹1,000 annually	₹250 per contribution, no annual requirement
Who Can Open?	Mandatory for all NPS subscribers	Only for those with an active NPS Tier I account
Best For	Retirement planning and pension accumulation	Short-term liquidity and flexible savings

NPS (National Pension System)

What is the National Pension Scheme?

Who Should Invest in the NPS?

How Does the NPS Scheme Work?

Opening an NPS Account:

Regular Contributions:

Investment Allocation:

Corpus Growth:

Partial Withdrawals:

Exit and Retirement Benefits:

Objectives of the National Pension System

Features and Benefits of NPS

Flexibility

Market-linked Returns

Low Costs and Power of Compounding

Highly Regulated

Online Access

Portability

Retirement Security

Tax Benefits**

Tax Benefits of Investing in National Pension System**

Tax Benefits to Employees on Self-Contribution

Tax Benefits on Employer Contributions

Under the old tax regime:

Under the new regime:

Tax Benefits for Self-Employed Individuals

Tax Benefits on Lump Sum Withdrawal at Age 60

Tax Benefits on Partial Withdrawals

NPS Withdrawal Rules after Retirement

National Pension Scheme Eligibility

NPS Model for the Government Sector

NPS Model for the Private Sector

NPS for all Eligible Indian Citizens

How to Invest in NPS?

Types of NPS

Tier I Account

Tier II Account

Asset Allocation Options Under NPS

Equity Allocation Rules

How to Log in to the NPS Account?

Logging in through the NSDL NPS Portal

Logging in through the KFintech NPS Portal

Features Available After Login

NPS Customer Care Number

FAQs

Eligibility

Basics of NPS

NPS Tax Benefits

Who is eligible for the NPS scheme?

Is there NPS for private sector employees?

What are Tier 1 and Tier 2 NPS accounts?

Is it good to invest in NPS?

What is the NPS interest rate?

Do I earn a fixed return on NPS?

Will the Government contribute to my NPS account?

Is NPS tax-free on maturity? **

Will I get tax benefits on investments in an NPS Tier-II account? **

How does NPS annuity income get taxed? **

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