National Pension System (NPS)
Build a retirement corpus with market-linked returns and additional tax savings of up to ₹50,000 under Section 80CCD(1B) — over and above the ₹1.5 lakh limit under Section 80C.
What is NPS?
The National Pension System is a voluntary, long-term retirement savings scheme regulated by PFRDA (Pension Fund Regulatory and Development Authority). It allows subscribers to contribute regularly during their working years to build a retirement corpus.
At retirement (age 60), you can withdraw up to 60% of the corpus as a lump sum (tax-free) and the remaining 40% must be used to purchase an annuity that provides regular pension income.
NPS Account Types
Tier I (Mandatory)
Primary retirement account with tax benefits. Withdrawal restrictions until age 60. Min ₹500/month.
Tier II (Voluntary)
Flexible savings account with no lock-in. No tax benefits (except for govt employees). Min ₹250/month.
Tax Benefits
Sec 80CCD(1)
₹1.5 Lakh
Employer contribution or self contribution up to 10% of salary (included in 80C limit)
Sec 80CCD(1B)
₹50,000
Additional deduction exclusively for NPS — over and above 80C limit
Sec 80CCD(2)
14% of Salary
Employer's contribution (no limit cap for tax benefit)
On Maturity
60% Tax-Free
Lump sum withdrawal of up to 60% is completely tax-free
Maximum tax saving: Up to ₹2 Lakh per year (₹1.5L under 80C + ₹50K under 80CCD(1B)). This translates to tax savings of up to ₹62,400 in the 30% bracket.
NPS Asset Classes
Equity
Invests in equity markets. Higher risk, higher return potential.
Risk: High
Corporate Bonds
Invests in corporate debt securities. Moderate risk.
Risk: Moderate
Government Bonds
Invests in government securities. Low risk.
Risk: Low
Alternative Assets
Invests in REITs, InvITs, etc. Moderate risk.
Risk: Moderate
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