The National Pension System (NPS) is a voluntary, long-term retirement savings scheme in India. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) under the Government of India.
It’s designed to provide old-age income (pension) to all Indian citizens by encouraging them to save during their working years.
👥 Who Can Join?
- Any Indian citizen (resident or non-resident) aged 18–70 years.
- Both salaried (government & private sector) and self-employed individuals can enroll.
📦 Types of NPS Accounts
- Tier I Account (Mandatory)
- Primary pension account
- Lock-in till age 60 (some partial withdrawals allowed)
- Tax benefits available
- Tier II Account (Optional)
- A voluntary savings account, flexible deposits & withdrawals
- Works like a mutual fund with no lock-in
- No extra tax benefits (except for government employees)
💰 Contribution Rules
- Minimum contribution: ₹500 per transaction (Tier I)
- Annual minimum: ₹1,000 (Tier I)
- No maximum limit (though tax benefit is capped)
⚙️ How It Works
- You contribute money regularly during your working years.
- Your contributions are invested in a mix of Equity (E), Corporate Bonds (C), and Government Securities (G).
- You can choose:
- Active Choice → you decide how much to invest in each asset class.
- Auto Choice → investment mix changes automatically as you age.
🎁 Tax Benefits (Under Income Tax Act)
- Section 80CCD(1):
- Deduction up to ₹1.5 lakh (part of overall 80C limit).
- Section 80CCD(1B):
- Additional deduction of ₹50,000 (over and above 80C).
- Section 80CCD(2):
- Employer’s contribution (up to 10% of salary) is also deductible.
👉 So, total tax benefit = up to ₹2 lakh for individuals.
🏦 Withdrawal & Pension
- At retirement (age 60):
- You can withdraw up to 60% of the corpus as a lump sum (tax-free).
- At least 40% must be used to buy an annuity from an insurance company (to provide monthly pension).
- Early exit (before 60):
- Must use 80% of the corpus for annuity, only 20% can be withdrawn.
📌 Example
If you invest ₹5,000/month in NPS for 30 years (10% returns assumed):
- Corpus at 60: ~₹1.1 Crore
- You can withdraw ~₹66 lakh lump sum (tax-free)
- Remaining ~₹44 lakh used for annuity → gives a monthly pension for life.
✅ In short:
NPS is one of the most cost-effective retirement savings plans in India — low charges, market-linked growth, tax benefits, and a lifetime pension.
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