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Now that you know what the National Pension System is, let’s see who the NPS scheme is suitable for:
The NPS scheme is structured to help individuals build a retirement corpus during their working years and convert it into
a steady income after retirement.
Things to know about the NPS scheme details:
The NPS scheme combines disciplined savings during employment with lifelong retirement security.
You may be clear on what the NPS scheme is, but what are its objectives?
NPS stands out as a well-rounded investment plan. It offers solid growth potential while providing safety and reliability, making it one of the most effective choices for building a strong retirement foundation.
The National Pension System is one of the most attractive retirement schemes in India, mainly due to the extensive tax advantages it offers.
Here’s a detailed look at the NPS’s tax benefits:
The National Pension Scheme is designed to cover a wide range of citizens. Here are the eligibility criteria and models:
Thus, the National Pension Scheme ensures broad coverage for government and private employees, as well as voluntary participants.
Investing in the NPS scheme is straightforward, and anyone can get started online or offline. You can contribute directly or through your employer, if they offer National Pension Scheme as part of your compensation package. In the latter option, you may not have to open an NPS account yourself.
Here’s the general procedure in case you are investing in NPS on your own:
If your employer offers NPS, it is advisable to reach out to your Human Resources team or Compensation & Benefits (C&B) team. They will help you understand how your contributions are deducted from your salary.
You can compare NPS Tier 1 vs Tier 2 and choose the right option depending on your goals. For each type of NPS account, the minimum contribution requirement can differ.
Tier 1: ₹500 minimum per contribution; ₹1,000 per year required to keep the account active.
Tier 2: ₹250 minimum per contribution, with no annual requirement.
Investors can switch fund managers or change asset allocation as per preference. With flexible NPS Tier 1 & Tier 2 options, the NPS scheme caters to a wide range of audiences.
The NPS pension scheme offers two types of accounts that serve different financial needs and offer varying withdrawal flexibility.
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 |
When comparing NPS Tier I vs Tier 2 accounts, know that the latter is only available for those who have the former type of account. Together, NPS Tier 1 & Tier 2 accounts give investors a mix of security and flexibility. It makes the NPS scheme suitable for both retirement-focused saving and day-to-day liquidity needs.
Once you have successfully opened your NPS account, you can manage it online through different portals such as the NSDL NPS portal and the KFintech NPS portal. You can even access your NPS account through your bank’s net banking service (if enabled).
Following is the breakdown of how to log in to your NPS account through the two main portals:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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