Facebook Twitter Youtube Linkedin Instagram
AMFI Registered Mutual Fund Distributor

National Pension System (NPS)

What is NPS?

The National Pension System (NPS) is a voluntary, long-term retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

It is designed to help individuals build a retirement corpus during their working years and provide regular income in the form of pension post retirement. NPS is a market-linked, low-cost retirement solution available to:

  • Salaried individuals (Government and Private sector)
  • Self-employed individuals
  • Professionals
  • Non-Resident Indians (subject to FEMA guidelines)
  • Any Indian citizen between 18 and 70 years of age
Each subscriber is allotted a Permanent Retirement Account Number (PRAN), which remains portable across employers and locations.

Types of NPS Accounts

1. Tier I Account (Primary Retirement Account)

  • Mandatory retirement account
  • Lock-in until age 60
  • Eligible for tax benefits
  • Partial withdrawal allowed under specified conditions

2. Tier II Account (Voluntary Account)

  • Optional account
  • No lock-in (except in limited cases for certain government employees)
  • No tax benefit on contributions
  • Flexible withdrawals
  • Functions similar to a mutual fund investment account
Most tax advantages are available only under Tier I.

Investment Options under NPS

Asset Classes Available

Subscribers can invest across the following asset classes:

Asset Class E – Equity

  • Investment in equity and equity-related instruments.
  • Higher return potential with higher volatility.

Asset Class C – Corporate Debt

  • Investment in corporate bonds and fixed income instruments.
  • Moderate risk and return profile.

Asset Class G – Government Securities

  • Investment in central and state government bonds.
  • Lower risk profile.

Asset Class A – Alternative Investment Exposure

  • Limited exposure to instruments such as REITs and InvITs, within regulatory limits.

Investment Choice Options

Active Choice

Subscriber selects allocation across Asset Classes E, C, G, and A, subject to regulatory caps. Equity allocation can go up to 75 percent (age-based cap applies).

Auto Choice (Lifecycle Funds)

Asset allocation automatically adjusts based on age.

Available in:

  • Aggressive Lifecycle
  • Moderate Lifecycle
  • Conservative Lifecycle
Equity exposure reduces gradually as the subscriber ages.

Pension Fund Managers

NPS investments are managed by PFRDA-registered Pension Fund Managers. Prominent fund managers include:
  • SBI Pension Funds
  • UTI Retirement Solutions
  • LIC Pension Fund
  • HDFC Pension Fund
  • ICICI Prudential Pension Fund
  • Kotak Pension Fund
  • Aditya Birla Sun Life Pension Fund
  • Axis Pension Fund
  • Tata Pension Management
  • Max Life Pension Fund
Subscribers may choose and change fund managers as per prescribed rules.

Key Features of NPS

Tax treatment depends on the type of contribution and the tax regime opted by the individual.
  • Regulated by PFRDA
  • Low cost structure compared to many retirement products
  • Transparent with daily NAV disclosure
  • Portable across employers and geographies
  • Online access and monitoring
  • Flexible asset allocation options

Tax Benefits under NPS

1. Section 80CCD(1) – Employee Contribution

  • Deduction up to 10 percent of salary (Basic + DA) for salaried individuals
  • For self-employed individuals, up to 20 percent of gross income
  • Within the overall limit of ₹1.5 lakh under Section 80C
Available only under the Old Tax Regime.

2. Section 80CCD(1B) – Additional Deduction

  • Additional deduction up to ₹50,000
  • Over and above the ₹1.5 lakh limit under Section 80C

3. Section 80CCD(2) – Employer Contribution

  • Deduction for employer contribution up to:
  • 10 percent of salary (Basic + DA) for private sector employees
  • 14 percent of salary (Basic + DA) for central government employees
  • No monetary ceiling
  • Over and above the ₹1.5 lakh and ₹50,000 limits
Available under both Old and New Tax Regimes.

This provision makes NPS particularly relevant for individuals opting for the New Tax Regime.

Note: Combined employer contributions to EPF, NPS and superannuation exceeding the prescribed threshold may be taxable as per prevailing income tax rules.

Taxation at Withdrawal

On Attaining Age 60

  • Up to 60 percent of accumulated corpus can be withdrawn as lump sum – fully tax exempt.
  • Minimum 40 percent must be used to purchase an annuity.

Annuity Income

  • Amount used to purchase annuity is tax exempt at the time of purchase.
  • Pension received from annuity is taxable as per applicable income tax slab.

Partial Withdrawal Before Age 60

  • Up to 25 percent of self-contribution
  • Allowed after completion of minimum holding period
  • Fully tax exempt

Exit Before Age 60

  • If a subscriber exits before 60:
  • 20 percent can be withdrawn as lump sum
  • 80 percent must be used to purchase annuity
Taxation applicable as per prevailing rules.

Taxation under Tier II Account

  • No deduction available under Section 80CCD.
  • Taxation similar to mutual funds based on asset allocation and holding period.
  • No special tax advantage except limited cases for certain government employees.

Summary Comparison

Feature

Tier I

Tier II

Lock-in

Till age 60

No lock-in

Tax Deduction

Yes (subject to regime)

No

Employer Contribution Benefit

Yes

No

Partial Withdrawal

Yes

Yes

Retirement Focus

Primary

Secondary

Who Should Consider NPS?

  • Salaried individuals receiving employer contribution
  • Individuals in higher tax brackets under Old Tax Regime
  • Individuals opting for New Tax Regime but receiving employer NPS contribution
  • Long-term investors focused on disciplined retirement accumulation
  • Those seeking low-cost retirement structure

Mutual Funds

SIP Investment

Downloads

Information

Risk Factors – Investments in Mutual Funds are subject to Market Risks. Read all scheme related documents carefully before investing. Mutual Fund Schemes do not assure or guarantee any returns. Past performances of any Mutual Fund Scheme may or may not be sustained in future. There is no guarantee that the investment objective of any suggested scheme shall be achieved. All existing and prospective investors are advised to check and evaluate the Exit loads and other cost structure (TER) applicable at the time of making the investment before finalizing on any investment decision for Mutual Funds schemes. We deal in Regular Plans only for Mutual Fund Schemes and earn a Trailing Commission on client investments. Disclosure For Commission earnings is made to clients at the time of investments. Option of Direct Plan for every Mutual Fund Scheme is available to investors offering advantage of lower expense ratio. We are not entitled to earn any commission on Direct plans. Hence we do not deal in Direct Plans.
AMFI Registered Mutual Fund Distributor | ARN- 159693 | Date of initial Registration: 05-Feb-2019 | Current validity: 04-Feb-2028

Follow Us :

Facebook Twitter Youtube Linkedin Instagram

Download Our App :

Disclaimer | Disclosure | Privacy Policy | Terms & Condition | Contact Us | SID/SAI/KIM | Code of Conduct

All Rights Reserved © 2023 www.satcowealth.com