National Pension Scheme (NPS)

The National Pension Scheme (NPS) is a voluntary, long-term retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It aims to provide financial security during retirement through market-linked returns. NPS was launched in 2004 for government employees and extended to all Indian citizens in 2009, NPS offers tax benefits, flexible contributions, and professional fund management.

Key Features of NPS

• Voluntary Participation – Open to all Indian citizens, including NRIs, aged 18-70.

• Market-Linked Returns – Invests in diversified asset classes (Equity, Corporate Bonds, Government Securities, and Alternative Investments).

• Dual Account Structure – Tier 1 (Retirement) and Tier 2 (Flexible Savings).

• Low-Cost Structure – One of the lowest fund management fees among pension schemes.

• Tax Benefits – Attractive deductions under Income Tax laws.

• Systematic Withdrawal – Provides a mix of lump sum and annuity benefits at retirement.

• Regulated by PFRDA – Ensuring safety and transparency.

Types of NPS Accounts

1. Tier 1 Account (Retirement Account)

   • Lock-in Period until the age of 60

   • Withdrawal up to 60% lump sum at retirement (tax-free)

   • 40% compulsory annuity purchase (pension after retirement)

   Tax Benefits:

   • Up to ₹1.5 lakh under Section 80CCD(1) (within the 80C limit)

   • Additional ₹50,000 under Section 80CCD(1B) (beyond 80C limit)

   • Section 80CCD(2): Employer’s contribution (up to 10% of salary, 14% for govt employees) – Not counted in 80C limit

2. Tier 2 Account (Voluntary Savings) – Flexible

   • No Lock-in Period – Withdraw anytime

   • Tax Treatment: No tax benefits (except for government employees under specific conditions)

   • Ideal For: Those who want additional flexibility with investments

NPS Withdrawal & Exit Rules

1. On Retirement (at 60 years or above):

   • 60% can be withdrawn tax-free

   • 40% must be used to buy an annuity (pension)

2. Premature Exit (Before 60 years):

   • Allowed after 5 years (for non-government employees)

   • 20% can be withdrawn (taxable); 80% must be used for annuity

3. Partial Withdrawal (Before 60 years):

   • Allowed after 3 years

   • Up to 25% of contributions (not earnings) can be withdrawn

   • Permitted for specific purposes: higher education, home purchase, medical treatment, etc.

NPS is a must-have retirement tool for individuals seeking tax-efficient, market-linked, and structured retirement planning.