What Is NPS?
The National Pension System (NPS) is a voluntary, market-linked retirement scheme regulated by PFRDA. You invest regularly during your working years; the corpus is invested in equity, corporate debt, and government securities based on your chosen allocation. At 60, you can withdraw up to 60% as a lump sum (tax-free) and use at least 40% to buy an annuity for pension. NPS offers extra tax benefits—80C (₹1.5L) plus 80CCD(1B) (₹50K additional)—and potential for higher returns than EPF or PPF due to equity exposure. For salaried employees, NPS can complement EPF for a larger retirement corpus.
Key Takeaways
- Tier I: Retirement account, lock-in till 60. 80C + ₹50K 80CCD(1B) tax benefit
- Tier II: Voluntary, liquid. No tax benefit. Use for extra savings
- Asset mix: Auto (lifecycle) or Active (you choose equity/debt)
- At 60: 60% lump sum tax-free; 40% annuity (pension)
- Use NPS Calculator: Project corpus with monthly contribution and return
How NPS Works for Salaried Employees
Salaried employees can join NPS through their employer (if the company offers it) or directly. Employer NPS allows the employer to contribute up to 10% of Basic+DA (your basic salary)—this is over and above your own contribution and qualifies for 80CCD(2), which is tax-free for you. You choose a Pension Fund Manager (PFM) and an allocation—Auto (lifecycle, reduces equity as you age) or Active (you set equity/debt mix, max 75% equity till 50). Your contribution is invested; returns depend on market performance. Historical returns have been 9–12% for equity-heavy portfolios.
Tier I vs Tier II
📊 NPS account types
Tax Benefits
- 80C: Up to ₹1.5L (shared with EPF, PPF, ELSS). Your NPS contribution counts.
- 80CCD(1B): Additional ₹50K for NPS Tier I. Over and above 80C. Only for NPS.
- 80CCD(2): Employer contribution to NPS (up to 10% of Basic) is tax-free for you. Not in 80C limit.
- At 60: 60% lump sum withdrawal is tax-free. 40% annuity (pension) is taxable as income.
Withdrawal Rules
Before 60: Partial withdrawal allowed for specific purposes—higher education, marriage, house purchase, medical emergency—subject to conditions and limits (e.g. 3 times in entire tenure, max 25% of contribution). At 60: You can withdraw up to 60% as lump sum (tax-free). At least 40% must be used to buy an annuity from an insurer—this gives you monthly pension for life. You can defer withdrawal and continue contributing till 70. If the corpus is less than ₹5 lakh at 60, you can withdraw 100%.
Why Salaried Employees Choose NPS
- Extra tax saving: ₹50K under 80CCD(1B) beyond 80C. Saves ~₹15K in tax at 30% slab
- Employer contribution: If employer contributes, it's free money; 80CCD(2) makes it tax-free
- Higher return potential: Equity exposure can give 9–12% vs EPF's 8.15%
- Low cost: Fund management charges are among the lowest for retirement products
- Complements EPF: EPF for safety; NPS for growth. Use both for a larger corpus
Use the NPS Calculator
Use our NPS Calculator to project your corpus. Enter monthly contribution, expected return, and years to retirement. See how NPS can add to your EPF and other savings for retirement.
Disclaimer
Returns are market-linked and not guaranteed. NPS rules may change. Verify with PFRDA and your PFM.