The National Pension System (NPS) was introduced in January 2004 for central government employees and opened to all citizens in May 2009. It is regulated by the PFRDA (Pension Fund Regulatory and Development Authority).

Key Features

  • Tier I: Mandatory pension account. Lock-in till age 60. Partial withdrawal allowed for specific purposes.
  • Tier II: Voluntary savings account. No lock-in. No additional tax deduction.
  • Fund choice: Equity (E), Corporate Bonds (C), Government Securities (G), Alternative Assets (A). Auto Choice or Active Choice.
  • On retirement: At least 40% of corpus must be used to buy annuity. Up to 60% can be withdrawn tax-free.

Tax Benefits

  • Section 80C: Up to ₹1.5 lakh (combined limit)
  • Section 80CCD(1B): Additional ₹50,000 deduction for NPS Tier I (over and above 80C limit)
  • Section 80CCD(2): Employer contribution up to 10% of salary is deductible