Minimum 40% must be allocated to annuity
Total Invested
₹
Maturity Value
₹
Lump Sum
₹
(60% withdrawal)
Annuity Corpus
₹
(40% to annuity)
Monthly Pension
₹
At 6% p.a
What is NPS?
National Pension System (NPS) is a voluntary retirement savings scheme designed to enable systematic savings. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). NPS is open to all Indian citizens aged 18-70 years.
Key Features
- Flexible contribution amounts (monthly, quarterly, or annual)
- Choice of investment (equity, corporate bonds, government securities)
- Tax benefits under Section 80CCD (up to ₹2 lakh deduction)
- Portable across jobs and locations
- At retirement, minimum 40% must go to annuity for pension
- Remaining 60% can be withdrawn as lump sum (subject to tax)
Tax Context: Under the new tax regime (default from FY 2023-24), NPS contributions under Section 80CCD(1B) up to ₹50,000 are still allowed. However, employer contributions under 80CCD(2) are restricted to 10% of salary (basic + DA) in the new regime vs 14% in the old regime. Lump sum withdrawals at retirement are partially taxable.
Updated: October 2026
Sources: PFRDA (pfrda.org.in), Income Tax Act
Note: Returns are market-linked and not guaranteed. Annuity rates vary by provider. Consult a financial advisor before investing.
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Frequently Asked Questions
What is NPS (National Pension System)?
NPS is a voluntary, defined-contribution retirement savings scheme regulated by PFRDA (Pension Fund Regulatory and Development Authority). It is open to all Indian citizens aged 18-70. You can contribute monthly/quarterly/yearly, choose your fund manager and asset allocation, and build a retirement corpus with tax benefits.
What are the tax benefits of NPS?
NPS offers three tax deductions: (1) Section 80CCD(1) - up to 10% of salary (20% for self-employed) within the overall ₹1.5L limit of 80C, (2) Section 80CCD(1B) - additional ₹50,000 deduction above the 80C limit, and (3) Section 80CCD(2) - employer contribution up to 10% of salary (14% for Central Govt) is tax-free. These benefits are available in both old and new tax regimes, though employer contribution limits differ (10% in new vs 14% in old regime).
How much can I withdraw from NPS at retirement?
At retirement (age 60), you must use a minimum 40% of your NPS corpus to purchase an annuity for monthly pension. The remaining up to 60% can be withdrawn as a lump sum. The lump sum withdrawal is partially taxable (40% is tax-exempt, additional 60% is taxable if not used for annuity). The monthly pension from annuity is fully taxable as per your income tax slab.
What is the difference between NPS Tier I and Tier II?
Tier I is the main pension account with mandatory lock-in until retirement (age 60). It offers tax benefits under 80CCD. Tier II is a voluntary savings account with no lock-in and can be withdrawn anytime, but it doesn't offer tax benefits (except for government employees under 80C). You can only open Tier II if you have an active Tier I account.
What returns can I expect from NPS?
NPS returns are market-linked and vary based on your asset allocation choice (equity, corporate bonds, government securities). Historically, NPS equity funds have delivered 12-14% annualized returns, corporate bond funds 8-10%, and government securities 7-9%. Conservative balanced portfolios typically achieve 9-11% returns. Returns are not guaranteed and depend on market performance.
Can I choose my fund manager and asset allocation?
Yes. You can choose from 10+ pension fund managers (SBI, HDFC, ICICI, UTI, LIC, etc.). For asset allocation, you can select Active Choice (you decide equity/debt/govt securities split) or Auto Choice (lifecycle-based allocation that becomes conservative as you age). You can switch fund managers once per year and change asset allocation anytime without charges.
What happens if I withdraw from NPS before retirement?
Premature withdrawal before age 60 is allowed only in specific cases: (1) Critical illness, (2) Higher education or marriage of children, or (3) Purchase/construction of house (maximum 3 times, 25% of your contribution). For exit before 60 (after 10 years), you must use 80% for annuity and can withdraw 20% as lump sum. Early exit is discouraged as NPS is designed for long-term retirement planning.
How do I maximize my NPS returns?
To maximize returns: (1) Start early to benefit from compounding, (2) Allocate more to equity when young (up to 75% allowed), (3) Use auto choice - aggressive initially, conservative near retirement, (4) Make regular contributions to maintain discipline, (5) Use the additional ₹50k deduction under 80CCD(1B) for tax arbitrage, (6) Compare fund manager performance and switch if needed. Even ₹5,000/month from age 30 can build ₹1+ crore by age 60 at 10% returns.