The National Pension Scheme (NPS) is a government-backed retirement savings plan that offers tax benefits, flexible investments, and a secure future. It helps individuals systematically build a retirement corpus while enjoying market-linked returns. With multiple investment options and professional fund management, NPS ensures long-term financial security. It is ideal for salaried professionals and self-employed individuals looking for a disciplined way to save for retirement. Start investing in NPS today and secure a worry-free post-retirement life with regular pension benefits.
NPS (National Pension Scheme)
How NPS Works
Contribution
Subscribers can contribute regularly and choose their preferred frequency and amount. There is a minimum contribution requirement, but no upper limit.
Investment Choices
- Active Choice: Choose your asset allocation across Equity (E), Corporate Debt (C), and Government Bonds (G).
- Auto Choice: Life-cycle fund where the allocation is automatically adjusted based on the age of the subscriber.
Withdrawal
- Before 60 Years: Allowed under specific conditions like children’s education, marriage, or critical illness.
- After 60 Years: Withdraw up to 60% of the corpus tax-free, and the remaining 40% is used to purchase an annuity.
Tax Savings
- Section 80C: Deduction up to ₹1.5 lakh.
- Section 80CCD(1): Additional deduction up to ₹50,000.
- Section 80CCD(2): Employer’s contribution is also eligible for tax benefits.
Tier I Account: The minimum contribution at the time of account opening is ₹500. Subsequent contributions must be at least ₹500 per contribution, with a minimum annual contribution of ₹1,000.
Tier II Account: The minimum contribution at the time of account opening is ₹1,000. Subsequent contributions must be at least ₹250 per contribution, with no minimum annual contribution requirement.
Subscribers can change their Pension Fund Manager (PFM) once per financial year for both Tier I and Tier II accounts. This can be done through the online portal by logging into your NPS account or by submitting a physical request through your Point of Presence (POP).
Yes, Non-Resident Indians (NRIs) can invest in NPS. They need to be between the age of 18 and 65 years and have to comply with the Know Your Customer (KYC) norms as prescribed by the regulations.
If you stop contributing to your NPS account:
Tier I Account: Your account will be frozen if the minimum annual contribution is not met. To reactivate, you need to pay a penalty of ₹100 per year of non-contribution along with the minimum required contributions.
Tier II Account: There is no minimum contribution requirement, so your account will not be frozen due to inactivity.
Active Choice: You decide the asset allocation across three asset classes: Equity (E), Corporate Bonds (C), and Government Securities (G). The maximum allocation to Equity is capped at 75% of the total contribution.
Auto Choice: The Life Cycle Fund where the allocation is automatically adjusted based on the age of the subscriber. It follows three lifecycle funds: Aggressive (LC75), Moderate (LC50), and Conservative (LC25).
Before 60 Years: Partial withdrawals up to 25% of the contributions are allowed after three years for specific purposes such as children’s education, marriage, house purchase or construction, and critical illness.
At 60 Years or Retirement: You can withdraw up to 60% of the corpus as a lump sum, which is tax-free. The remaining 40% must be used to purchase an annuity to provide a regular pension.
Yes, NPS is suitable for individuals nearing retirement as it provides an additional avenue for retirement savings with tax benefits. However, it is more beneficial when contributions are made over a longer period to maximize the retirement corpus and investment growth.
Contributions to NPS are eligible for tax deductions under:
Section 80C: Up to ₹1.5 lakh, which includes other eligible investments.
Section 80CCD(1): Up to ₹50,000 additional deduction over and above Section 80C.
Section 80CCD(2): Employer’s contribution up to 10% of salary (Basic + DA) is also eligible for tax deduction, without any monetary limit.
The pension amount is determined by the accumulated corpus in your NPS account at the time of retirement and the annuity plan chosen. The higher the accumulated corpus, the higher will be the pension.
Yes, you can nominate one or more individuals to receive the benefits of your NPS account in the event of your demise. You can update the nominee details through the NPS online portal or by submitting a physical form to your POP.