National Pension System

Market-linked retirement savings with extra tax benefits

What is it?

NPS is a government-sponsored pension scheme that invests in equity, corporate bonds, and government securities. It's market-linked (unlike PPF), so returns are higher but not guaranteed.

Managed by PFRDA, with multiple fund managers to choose from.

How does it work?

1. Open an NPS account (Tier 1 mandatory, Tier 2 optional)
2. Choose allocation — Equity (max 75%), Corporate Bonds, Govt Securities
3. Invest regularly — Min ₹500/contribution, ₹1,000/year
4. Locked till 60 — Partial withdrawal allowed for specific needs
5. At 60: Withdraw 60% lump sum (tax-free), buy annuity with 40%

Who should invest?

• High earners — The extra ₹50,000 80CCD(1B) deduction saves ₹15,600 in the 30% bracket
• Disciplined savers — Lock-in ensures you don't dip into retirement savings
• Anyone without employer pension — Freelancers, self-employed, gig workers

Caution: Mandatory annuity purchase at maturity (40%) can feel restrictive.

Tax treatment

Old regime:

• 80CCD(1): Part of 80C limit (₹1.5L)
• 80CCD(1B): Additional ₹50,000 deduction — over and above 80C
• Employer contribution: 80CCD(2) — up to 10% of basic (no limit)

New regime:

• Only employer contribution under 80CCD(2) available

At maturity: 60% lump sum is tax-free. Annuity income is taxable.

How to start?

1. Open NPS account on eNPS portal (enps.nsdl.com) or through your bank
2. Choose fund manager (SBI, HDFC, ICICI are popular)
3. Select 'Active Choice' with 60-75% equity if you're under 40
4. Invest ₹50,000/year to maximize the 80CCD(1B) benefit

Disclaimer: This is educational content, not investment advice. Returns and tax rules are indicative and subject to change. Consult a SEBI-registered advisor for personalized guidance.