National Pension Scheme (NPS) 2026: Tax Benefits, Withdrawal Rules, Calculator & How to Open an Account
Retirement planning is one of those things most people keep postponing. Then suddenly they're 50 and panicking. The National Pension System was built precisely to stop that from happening — a government-backed, PFRDA-regulated scheme that lets you build a retirement corpus slowly, steadily, over years of working life.
It's not flashy. But it works.
The national pension scheme is open to employees across public, private, and unorganized sectors — everyone except armed forces personnel.
The idea is straightforward. You invest a fixed amount into your pension account regularly while you're working. When you retire, you withdraw a portion of that corpus as a lump sum. The rest gets converted into a monthly pension for the rest of your life.
NPS combines market-linked returns with serious tax advantages — which is why it's become one of the most popular retirement planning tools in India. Contributions go into either a Tier I account (with tax benefits) or both Tier I and Tier II. Tax deductions go up to Rs. 2 lakh under Section 80C and 80CCD(1B) combined.
Here's a quick summary of the scheme before we go deeper:
Aspect
Details
Objective
Help citizens plan retirement through systematic savings
Eligibility
Indian citizens aged 18–85 years
Tier I Account
Mandatory for govt. employees; optional for others
Tier II Account
Optional for everyone
Minimum Contribution
Tier I: ₹1,000/year; Tier II: ₹250 to open
Investment Options
Active choice or auto choice (age-based)
Withdrawal
Min. 20% as annuity on retirement (40% for govt. employees)
Returns
Market-linked — no fixed rate
Not many people know about this one.
Under NPS Vatsalya, parents can open a national pension system account for their minor children and contribute monthly or annually until the child turns 18. Once they hit adulthood, they take over the account independently — it simply converts into a regular NPS account.
Budget 2025 extended all NPS tax benefits to NPS Vatsalya accounts as well. So parents get the same deductions on contributions made for their children. That's a meaningful addition.
The national pension yojana isn't meant for everyone — but it covers a surprisingly wide group. You can join if:
A few groups are excluded: Overseas Citizens of India (OCI), Persons of Indian Origin (PIOs), and Hindu Undivided Families (HUFs) cannot subscribe to NPS. Also, NPS is strictly an individual account — you cannot open it on behalf of someone else.
Any Indian citizen between 18 and 85 years — including NRIs — can open a national pension system account.
The NPS scheme has been running for over a decade. In that time, it has delivered annualized returns of 11% to 20%, depending on asset allocation and fund manager. No fixed rate, but historically? Better than most traditional tax-saving instruments.
There's a cap on equity exposure — currently between 50% and 75% for most subscribers. For government employees and senior citizens, that cap sits at 50%.
Two investment styles to choose from:
Auto choice — The scheme adjusts your equity exposure automatically based on your age. As you get older, it shifts you toward lower-risk, more stable options.
Active choice — You decide. You pick the fund manager, choose the asset split, and take full control.
This is where NPS genuinely stands out. You can contribute anytime during the financial year, change your investment options, switch fund managers if performance disappoints, and operate everything online — even if you move cities or switch jobs. The scheme travels with you.
This is where NPS gets really interesting for salaried people.
Tax Benefits for Employees (Self-Contribution)
Worth noting: these deductions are not available under the new tax regime.
Under Section 80CCD(2), the employer's NPS contribution — up to 10% of salary — is deductible. Under the new regime, that goes up to 14%. Central government employers get 14% regardless of which regime you've chosen.
Self-employed contributors to the national pension plan can claim:
Again — not claimable under the new tax regime.
Partial withdrawal: Up to 25% of self-contribution is tax-exempt under Section 10(12B), subject to PFRDA-specified conditions.
Lump sum withdrawal: 60% of the total NPS corpus withdrawn at retirement (age 60 or superannuation) is fully tax-exempt under Section 10.
Annuity purchase: Tax-exempt at the time of purchase under Section 80CCD(5). However, the monthly income from that annuity is taxable at slab rates under Section 80CCD(3).
PFRDA recently amended the NPS withdrawal framework. Accounts can now be maintained until age 85. Here's how it works:
Exit Scenario
Balance at Exit
Lump Sum Allowed
Annuity Requirement
Retirement / Discharge
Up to ₹8 lakh
100%
Not mandatory
₹8L–₹12L
Up to ₹6L or 60%
At least 40%
Above ₹12L
Up to 60%
Resignation / Removal
Up to ₹5L
Above ₹5L
Up to 20%
At least 80%
Death
Up to ₹8L
Above ₹8L
Superannuation / 60 yrs / Incapacitation
Up to ₹6L or 80%
At least 20%
Up to 80%
Voluntary Exit
Any amount
Up to 100%
Joined at ≥60 yrs
Up to ₹12L
On Superannuation
Non-government subscribers can withdraw up to 80% as a lump sum; 20% goes into an annuity. Government employees withdraw 60% lump sum with 40% into annuity.
You can also choose Systematic Lump sum Withdrawal — monthly, quarterly, half-yearly, or annually. If your total corpus is ₹8 lakh or below, you can withdraw 100% without buying an annuity at all.
Premature Exit (Before Age 60)
At least 80% of the corpus must go into an annuity purchase. If the total is ₹5 lakh or less, 100% lump-sum withdrawal is allowed.
On Death of Subscriber
The full corpus — 100% — goes to the nominee or legal heir. No conditions.
One more thing: NPS Tier II withdrawals are completely unrestricted. No lock-in period whatsoever.
There's no fixed interest in NPS — the national pension scheme calculator works by projecting returns based on your monthly contribution, age, expected retirement age, and chosen return rate. Use the NPS scheme calculator to estimate your retirement corpus and expected monthly pension.
Input variables:
The nps pension calculator gives you two outputs: the projected corpus at retirement and the estimated monthly pension. Run it once — it changes how you think about how much you're currently saving.
Both accounts exist within the national pension system trust framework. But they serve very different purposes.
Feature
NPS Tier-I
NPS Tier-II
All Indian citizens (18–85)
Only Tier-I holders
Account Type
Retirement/pension account
Flexible savings account
Mandatory?
For central/state govt. employees
₹500/contribution (₹1,000/year)
₹250/contribution
Withdrawals
Restricted until 60 (partial exceptions)
Withdraw anytime
Tax Benefits
80C + 80CCD(1B)
Only for govt. employees (3-yr lock-in)
Purpose
Long-term retirement corpus
Flexible investing
Tier II is basically a savings account within the NPS architecture. Liquid, flexible, no annuity requirement. Tier I is where the serious retirement money goes.
Contributions to NPS Tier II are deductible under Section 80C — but only if you maintain a minimum 3-year lock-in period. The maximum deduction is ₹1.5 lakh (within the combined Section 80C threshold). This benefit is not available under the new tax regime.
Let's be direct: there's no fixed NPS interest rate. This is a market-linked scheme.
Your returns from the national pension system depend on:
Historically, returns have ranged between 11% and 20% annualized. Debt and government securities within the scheme have returned 7.5% to 11.2% in recent periods. Not guaranteed — but consistently ahead of traditional fixed-return savings products.
Investment flexibility — You control how aggressively or conservatively your money is invested. Switch between fund managers if performance doesn't meet expectations.
Portability — Changed jobs three times in five years? Your NPS account follows you everywhere, with minimal paperwork involved.
Low fund management charges — NPS has some of the lowest fund manager fees in the Indian market. More of your money actually stays invested.
Structured retirement planning — The scheme forces you to build a steady post-retirement income. That discipline is the whole point.
The government launched the Unified Pension Scheme (UPS) as an option under NPS. Here's how they compare:
Particulars
National Pension Scheme
Unified Pension Scheme
Who it's for
Indian citizens aged 18–85
Central govt. employees under NPS
Minimum pension
No guaranteed minimum
₹10,000/month guaranteed
Employee contribution
10% of Basic + DA
Employer contribution
14% of Basic + DA
8.5% of Basic + DA
Pension calculation
Based on market returns
50% of avg. basic pay (last 12 months) for 25+ yrs of service
Tax benefits
80C, 80CCD(2)
Same as NPS
UPS is more predictable. NPS has higher potential. If you're a central government employee who wants a guaranteed floor, UPS makes sense. If you're private sector or want market-linked upside, NPS is the route.
NPS payment online and account opening takes under 30 minutes if you have your PAN, Aadhaar, and registered mobile number ready.
Go to enps.nsdl.com. Link your PAN and Aadhaar. Validate using the OTP sent to your phone. You'll instantly receive a PRAN — Permanent Retirement Account Number — which becomes your login ID for all future NPS transactions.
Access your national pension system account through either:
Your PRAN is the User ID for both platforms.
NPS won't make you rich overnight — and it's not designed to. What it does is build a retirement corpus quietly, tax-efficiently, over decades. If your risk tolerance is moderate and you want a government-backed structure for your retirement, the national pension plan deserves serious consideration.
If you want higher equity exposure with more flexibility, mutual funds remain the alternative. But for most salaried Indians? NPS belongs in the mix.
A: There's no fixed number — it depends on how much you contributed, how long you stayed invested, which asset classes you chose, and the annuity plan you purchase at retirement. Use the national pension scheme calculator to get a personalized estimate based on your current age and contribution amount.
A: NPS has no fixed interest rate — it's market-linked. Equity funds within NPS have historically returned 11–20% annualized. Debt and government securities have returned approximately 7.5–11.2% in recent years. The actual return depends on your fund manager and asset allocation.
A: Tier I is the core retirement account — locked in until age 60, with tax benefits under Section 80C and 80CCD(1B). Tier II is a voluntary, flexible savings account with no lock-in — you can withdraw anytime, but it offers no tax benefits (except for central government employees who maintain a 3-year lock-in).
A: Yes, partial withdrawal of up to 25% of your own contributions is allowed after 3 years, but only for specific reasons — illness, children's education or marriage, disability, home purchase, or starting a business. Before age 60, if you exit fully, at least 80% of the corpus must go into an annuity.
A: Yes. You can claim deductions under both — up to ₹1.5 lakh under 80C and an additional ₹50,000 under 80CCD(1B) — making the total NPS deduction ₹2 lakh per year. Both deductions are available only under the old tax regime, not the new one.
A: Yes, NRIs can open an NPS account and contribute to the national pension system. Contributions are subject to RBI and FEMA guidelines. However, Overseas Citizens of India (OCI), Persons of Indian Origin (PIOs), and HUFs are not eligible.
A: 60% of the total corpus withdrawn as a lump sum at retirement is fully tax-exempt. The remaining 40% used to purchase an annuity is also tax-exempt at purchase, but the monthly income from the annuity is taxed at your applicable income slab rate.
A: Not automatically. Contributions to Tier II are deductible under Section 80C only if you maintain a 3-year lock-in — and only for central government employees. For everyone else, Tier II contributions offer no tax deduction. This benefit is unavailable under the new tax regime.
A: There are currently eight PFRDA-registered pension fund managers under the national pension system trust. Performance varies year to year, so there's no permanent best option. Check the NPS Trust website for updated fund-wise performance data before choosing or switching.
A: Yes, you can hold both simultaneously. NPS and EPF serve different purposes — EPF is employer-linked, while NPS is portable and individually managed. Having both is a legitimate retirement planning strategy and there's no regulatory restriction against it.
Your email address will not be published. Required fields are marked *