National Pension Scheme

National Pension Scheme

The National Pension Scheme is a social security initiative by the Central Government. This pension programme is open to employees from the public, private and even the unorganised sectors except those from the armed forces. National Pension Scheme (NPS) India is a voluntary and long-term investment plan for retirement under the purview of the Pension Fund Regulatory and Development Authority (PFRDA) and Central Government.

The scheme encourages people to invest in a pension account at regular intervals during the course of their employment. After retirement, the subscribers can take out a certain percentage of the corpus. As an NPS account holder, you will receive the remaining amount as a monthly pension post your retirement.

Benefits & Features

Returns / Interest

A portion of the NPS goes to equities (this may not offer guaranteed returns). However, it offers returns that are much higher than other traditional tax-saving investments like the PPF.

Tax efficiency

There is a deduction of up to Rs.1.5 lakh to be claimed for NPS – for your contribution as well as for the contribution of the employer. – 80CCD(1) covers the self-contribution, which is a part of Section 80C.

Easy Withdrawal

As a pension scheme, it is important for you to continue investing until the age of 60. However, if you have been investing for at least three years, you may withdraw up to 25% for certain purposes.

Risk Assessment

Currently, there is a cap in the range of 75% to 50% on equity exposure for the National Pension Scheme. For government employees, this cap is 50% and the equity portion will be reduced by 2.5%.

Types of NPS Account

The two primary account types under the NPS are tier I and tier II. The former is the default account while the latter is a voluntary addition. The table below explains the two account types in detail.



Particulars NPS Tier-1 Account NPS Tier-2 Account
Status Default Voluntary
Withdrawals Not Permitted Permitted
Tax exemption Up to Rs 2 lakh p.a.(Under 80C and 80CCD) 1.5 lakh for government employees Other employees-None
Minimum NPS contribution Rs 500 or Rs 500 or Rs 1,000 p.a. Rs.250
Maximum NPS contribution No Limit No Limit