National Pension System (NPS) Complete Guide
In this guide
Step-by-step Process
Understand NPS Structure
NPS has two tiers: Tier I (mandatory pension account) — withdrawals restricted until 60; Tier II (voluntary savings account) — no withdrawal restrictions. Regulated by PFRDA. Market-linked returns through Pension Fund Managers (PFMs). Four asset classes: E (equity), C (corporate bonds), G (government securities), A (alternative assets).
Open NPS Account (eNPS)
Visit enps.nsdl.com. Select: New Registration → National Citizen (or Corporate). Enter PAN, Aadhaar (OTP verification). Choose Pension Fund Manager (SBI, LIC, HDFC, Kotak, etc.), investment choice (Active/Auto), and asset allocation. Pay minimum ₹500 (Tier I). PRAN (Permanent Retirement Account Number) generated instantly.
Tax Benefits of NPS
Section 80CCD(1): Up to 10% of salary (employees) or 20% of income (self-employed), within ₹1.5 lakh 80C limit. Section 80CCD(1B): Additional ₹50,000 deduction over 80C limit — exclusively for NPS. Section 80CCD(2): Employer contribution up to 14% (govt) / 10% (others) fully deductible — not included in ₹1.5 lakh limit. Total possible: ₹2 lakh + employer contribution.
Partial Withdrawal Rules
After 3 years: Partial withdrawal up to 25% of own contributions for: higher education, marriage of children, construction/purchase of house, critical illness treatment, starting business. Maximum 3 withdrawals in entire tenure. No withdrawal from employer contribution portion.
Exit and Annuity at Retirement (60+)
At 60: 60% of corpus is tax-free withdrawal. Remaining 40% must be used to purchase annuity (monthly pension) from IRDAI-registered insurance company. You can choose annuity type: Life annuity, annuity with return of purchase price, joint life annuity (with spouse). Exit before 60: Only 20% withdrawal; 80% must go to annuity.
Official Government Portals
Common Questions
Is NPS better than PPF for retirement?
NPS offers higher returns (market-linked, historically 10–12% in equity) and extra ₹50,000 deduction under 80CCD(1B). PPF offers guaranteed 7.1% with complete flexibility and tax-free maturity. Best strategy: Maximize both — PPF for guaranteed corpus, NPS for market-linked growth and extra tax benefit.
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