The **National Pension System (NPS)** is a voluntary, government-regulated retirement savings scheme in India. It’s designed to help individuals build a substantial retirement corpus through systematic investment. Regulated by the **Pension Fund Regulatory and Development Authority (PFRDA)**, NPS offers market-linked returns, low management costs, and attractive tax benefits. Whether you’re a salaried employee, a self-employed professional, or a government servant, NPS is a smart and secure long-term financial tool for your future.

📂 Types of NPS Accounts: Tier 1 vs. Tier 2

NPS offers two types of accounts, each serving a different purpose. The **Tier 1** account is your primary, retirement-focused account, while the **Tier 2** account is an optional, flexible savings account.

Feature	Tier 1 (Main Account)	Tier 2 (Optional Account)
Purpose	Retirement corpus	Voluntary savings
Lock-in Period	Till age 60 (with conditions)	No lock-in (except 3 years for Central Govt. staff)
Minimum Contribution	₹500/year	₹250 one-time minimum
Tax Benefits	✅ Yes (under Section 80C, 80CCD)	❌ Generally no tax benefits
Withdrawal Rules	Restricted (detailed below)	Fully flexible

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⚙️ How to Open an NPS Account

Opening an NPS account is a simple process that can be done online or offline. You must be an **Indian citizen** (resident or NRI) between **18 and 70 years** of age and complete KYC verification.

🖥️ Option 1: Online (eNPS Portal)

• Visit the official eNPS portal: https://enps.nsdl.com
• Register using your PAN or Aadhaar.
• Upload the required documents for verification.
• Make your initial contribution (₹500 or more).
• You will receive your **Permanent Retirement Account Number (PRAN)**.

🏦 Option 2: Offline

• Visit any Point of Presence (PoP) such as a bank or post office.
• Submit the filled Subscriber Registration Form (Form S1) along with KYC documents.
• Make the initial payment.

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💸 Tax Benefits Under Old & New Tax Regimes

One of the biggest advantages of NPS is its significant tax-saving potential. The benefits, however, differ between the old and new tax regimes.

🏛️ Under Old Tax Regime

You can claim deductions up to a maximum of **₹2,00,000** annually.

Section	Limit	Applicable To
80CCD(1)	Up to ₹1.5 lakh (within the overall Section 80C limit)	Self-contribution
80CCD(1B)	Additional ₹50,000 (over and above the ₹1.5 lakh limit)	Self-contribution
80CCD(2)	Up to 10% of salary (Basic + DA). For Central Government employees, it’s up to 14%.	Employer’s contribution

🧾 Under New Tax Regime (Post 2020)

Under the new regime, most tax deductions are not available, but there is one key exception for NPS contributions:

Section	Deductible?
80CCD(1)	❌ Not allowed
80CCD(1B)	❌ Not allowed
80CCD(2)	✅ Allowed (employer’s contribution)

🔹 Even if you opt for the new tax regime, you can still claim a tax deduction under **Section 80CCD(2)** for the contributions made by your employer.

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🧠 Investment Choices

NPS offers you flexibility in how your money is invested. You can choose between two main options:

• Auto Choice (Life Cycle Fund): Your asset allocation (equity, corporate bonds, etc.) is automatically adjusted based on your age. As you get older, the scheme gradually shifts your investments from higher-risk equities to lower-risk debt instruments.
• Active Choice: You have the freedom to decide the ratio of your investments across different asset classes:
  • Equity (E): Maximum 75%
  • Corporate Bonds (C)
  • Government Securities (G)
  • Alternative Assets (A): Maximum 5%

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🔓 NPS Withdrawal Rules (Tier 1 Account)

Understanding the withdrawal rules is crucial for proper financial planning. The rules are strict to ensure the corpus is used for retirement.

✅ Partial Withdrawals (Before Age 60)

• Allowed only after **3 years** from account opening.
• Maximum of **3 withdrawals** in the entire tenure.
• Each withdrawal is limited to **25% of your own contributions** (excluding employer’s contribution and returns).
• There must be a minimum gap of **5 years** between each withdrawal, with exceptions for emergencies.

Valid Reasons for Partial Withdrawal:

• Higher education or marriage of children.
• Purchase or construction of a first house.
• Treatment for a critical illness of self or family.
• Expenses related to disability or incapacitation.

🚪 Exit Before 60 Years (Premature Exit)

• Permitted only after completing **10 years** of service.
• You can withdraw a **20% lump sum**, but the remaining **80%** must be used for a mandatory annuity purchase.
• The lump sum amount is tax-free, but the annuity income is taxable as per your income tax slab.

🎉 Exit at 60 Years or Later (Normal Exit)

• **60%** of the corpus can be withdrawn as a tax-free lump sum.
• The remaining **40%** must be used to purchase an annuity, which provides a regular pension.
• The annuity income is taxable, but the lump sum is completely tax-free.
• You have the option to defer your withdrawal until age 75.

*Note: If your total NPS corpus is ₹5 lakh or less at the time of normal exit (at or after age 60), you can withdraw the entire corpus as a lump sum, without the need for an annuity. This amount is fully tax-free.

⚰️ On Subscriber’s Death

• The **entire corpus** is paid to the nominee or legal heir.
• There is no annuity requirement in this case.
• The amount is completely tax-free for the nominee.

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💳 Tier 2 Withdrawal Rules

The Tier 2 account is designed for flexibility.

• There are **no restrictions** on withdrawals; you can withdraw funds anytime.
• It functions similarly to a mutual fund account, making it ideal for those who want liquidity along with their long-term retirement goals.
• However, contributions to the Tier 2 account do not offer any tax benefits (with the exception of Central Government employees, where contributions are eligible for a tax deduction under Section 80C after a lock-in period of 3 years).
• Withdrawals are subject to capital gains tax.

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🔍 NPS vs. Other Popular Schemes

Here’s a quick comparison of NPS with other common retirement and tax-saving instruments to help you make an informed decision.

Feature	NPS	PPF	ELSS	EPF
Lock-in	Till 60 years	15 years	3 years	Till retirement
Returns	8-12% (market-linked)	~7.1% (fixed)	12-15% (market-linked)	~8.25% (fixed)
Tax Benefit	Up to ₹2L (old regime)	Up to ₹1.5L	Up to ₹1.5L	Up to ₹1.5L
Tax on Returns	Partially tax-free	Fully exempt	LTCG > ₹1L taxed	Partially taxable

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