How NPS works
The National Pension System is a market-linked retirement scheme regulated by PFRDA. Your contributions are invested in a mix of equity, corporate bonds and government securities that you (or an auto-choice lifecycle fund) choose.
At retirement
When you exit, part of the corpus can be withdrawn as a tax-free lump sum and the rest must be used to buy an annuity from an insurer, which pays you a regular pension. PFRDA sets and periodically revises the minimum annuity share and other exit rules, so adjust the annuity percentage above to match the current rules.
Tax benefits
- Your contribution: deduction under 80CCD(1) within the ₹1.5 lakh 80C limit, plus an extra ₹50,000 under 80CCD(1B) — old regime only.
- Employer contribution: deductible under 80CCD(2) in both the old and new regimes, within the specified limit of salary.
- Annuity income (your pension) is taxable as income in the year you receive it.
Comparing options? Read NPS vs PPF or use the retirement calculator.
Returns are not guaranteed. Annuity rates depend on the insurer and plan chosen at the time of retirement.