NPS: National Pension Scheme Details
1. What is National Pension Scheme (NPS)
The National Pension Scheme (NPS) is a voluntary, long-term retirement savings plan aimed at helping individuals build a secure financial future for their post-retirement years. It allows subscribers to systematically accumulate savings during their working life through regular contributions to their pension account.
- 1. What is National Pension Scheme (NPS)
- 2. Who Can Join NPS?
- 3. Key Features of NPS
- 4. Tax Benefits
- 5. How NPS Works
- 6. Benefits of NPS
- 7. How to Open NPS Account
- 8. How are NPS Returns Calculated?
- What Are the Returns on NPS (National Pension Scheme)?
- What is the National Pension Scheme Interest Rate?
- What is the Withdrawal Process Under the National Pension Scheme?
- Types of Withdrawal Forms Available Under the NPS scheme
- NPS Scheme Withdrawal Forms on Superannuation
- NPS Scheme Withdrawal Forms Before Superannuation
- NPS Scheme Withdrawal Form For Claimants on Demise of the Subscriber
- Key Takeaway
- FAQ:-
Upon reaching retirement age—or under specific conditions allowing premature withdrawal—the accumulated corpus can be strategically utilized. Up to 60% of the retirement corpus can be withdrawn tax-free. If the account balance is less than ₹5 lakh at retirement, the subscriber has the flexibility to decide whether to withdraw it.
A minimum of 40% of the fund must be used to purchase an annuity from PFRDA-approved providers, ensuring a steady income after retirement and helping to mitigate financial uncertainty. Retirees can select from various annuity options based on their needs, including a single-life annuity, annuity with spouse coverage, guaranteed-period annuity, or a plan with a potential return of capital.
2. Who Can Join NPS?
- Indian Citizens (resident or non-resident)
- Age Limit: 18 to 70 years
- Types of Subscribers:
- Tier-I Account: Mandatory for long-term retirement savings (withdrawal restrictions apply)
- Tier-II Account: Voluntary savings account (more flexible withdrawals, no tax benefits like Tier-I)
3. Key Features of NPS
| Feature | Details |
|---|---|
| Contributors | Employees, self-employed individuals, government employees, and private sector workers |
| Account Types | Tier-I (mandatory, tax benefits) Tier-II (optional, flexible) |
| Contribution Frequency | Flexible (minimum ₹500 per contribution for Tier-I, ₹250 for Tier-II) |
| Investment Options | Equity (E), Corporate Bonds (C), Government Securities (G), Alternative Investment Funds (A – optional for active choice) |
| Returns | Market-linked; depends on asset allocation and fund performance |
| Withdrawal | Partial withdrawals allowed after 3 years (for specific purposes like children’s education or medical emergencies) |
4. Tax Benefits
Under Indian Income Tax laws:
- Tier-I NPS contributions:
- Up to ₹1.5 lakh under Section 80C
- Additional ₹50,000 under Section 80CCD(1B)
- Tier-II NPS contributions: No tax deduction (except for government employees in certain conditions)
- Withdrawal:
- 60% of corpus is taxable at retirement
- 40% can be withdrawn tax-free if used to buy an annuity
5. How NPS Works
- Open an Account: Through a Point of Presence (POP) like banks or online platforms.
- Contribute Regularly: Small, flexible contributions to grow retirement corpus.
- Investment Allocation: Choose between Active Choice (you pick the fund allocation) or Auto Choice (life-cycle fund allocation).
- Accumulation Phase: Funds grow with market-linked returns.
- Retirement: At 60 years, you must use at least 40% to purchase an annuity (provides monthly pension) and can withdraw the remaining 60% lump sum.
6. Benefits of NPS
- Flexible and voluntary contribution
- Low-cost investment option (expense ratio <1%)
- Tax benefits under Sections 80C and 80CCD(1B)
- Diversified investment across equities, bonds, and government securities
- Retirement income through annuity
7. How to Open NPS Account
- Visit an authorized Point of Presence (POP), such as SBI, HDFC, ICICI, etc.
- Submit KYC documents (Aadhaar, PAN, bank details)
- Fill out the NPS application form
- Choose Tier-I or Tier-II account
- Start contributing online or offline
8. How are NPS Returns Calculated?
You can calculate returns on your NPS account by using the NPS calculator. An NPS calculator is a handy online tool that helps individuals estimate their potential pension. Users input their relevant financial information into the calculator, and it generates an estimate of the pension they may receive during retirement through their National Pension Scheme account. These calculators are designed to assist people in planning and making informed decisions about their retirement savings and income.
What Are the Returns on NPS (National Pension Scheme)?
The National Pension Scheme (NPS) offers potentially higher returns compared to fixed-income schemes due to its investment in equities. However, unlike Fixed Deposits or PPF, National Pension Scheme returns are not guaranteed. They depend on the performance of the underlying assets you choose to invest.
Here’s how they work:
- Market-linked: Market-linked Pension Plan invests your contributions in a mix of asset classes, including equity, government bonds, and alternative investments. The returns you earn are based on how these assets perform in the market.
- Choice of Pension Fund Managers: The National Pension Fund scheme allows you to choose a Pension Fund Manager (PFM) who invests your contributions as per your chosen asset allocation. Different PFMS may deliver varying returns based on their investment strategies.
- NPS (National Pension Scheme) returns are not guaranteed but have historically offered good returns.
- NPS is a long-term investment, and staying invested for a longer duration can help average out market volatility and potentially earn better returns.
+Standard T&A Applied
What is the National Pension Scheme Interest Rate?
The NPS interest rate depends on asset performance, making it challenging to predict the retirement return. NPS scheme operates as a market-linked product, allowing investment in diverse assets, including equity, government debt, corporate debt, and alternative assets. Once you finalise the asset mix and choose a fund manager, your funds are allocated to specific schemes within these four asset classes under the new pension scheme.
The NPS scheme provides the flexibility of Tier I and Tier II accounts, with the current interest rates as of 2025:
Tier I: Top-performing equity pension fund managers for Tier I accounts:
| Pension Fund Managers | 1-Year Returns (%) | 3-Year Returns (%) | 5-Year Returns (%) |
| NPS SBI Interest Rate | 30.03% | 15.64% | 19.10% |
| HDFC NPS Interest Rate | 33.10% | 16.10% | 21.15% |
| ICICI NPS Interest Rate | 34.38% | 17.19% | 20.92% |
| LIC Pension Fund | 31.29% | 16.34% | 19.91% |
| Aditya Birla Pension Fund | 32.70% | 16.46% | 20.09% |
| Kotak Mahindra Pension Fund | 33.62% | 17.37% | 20.94% |
Tier II: Top-performing equity pension fund managers for Tier II accounts:
| Pension Fund Managers | 1-Year Returns (%) | 3-Year Returns (%) | 5-Year Returns (%) |
| NPS SBI Interest Rate | 30.18% | 15.84% | 19.24% |
| HDFC NPS Interest Rate | 33.14% | 16.15% | 20.50% |
| ICICI NPS Interest Rate | 33.14% | 17.04% | 20.88% |
| Kotak Mahindra Pension Fund | 33.57% | 17.39% | 20.74% |
| LIC Pension Fund | 30.41% | 16.02% | 19.89% |
| Aditya Birla Pension Fund | 33.42% | 16.86% | 20.14% |
What is the Withdrawal Process Under the National Pension Scheme?
- When one becomes 60 years of age, subscribers are entitled to withdraw 60% of the corpus.
- The rest 40% is up for use through annuity purchase.
- In the case where pension saving is up to ₹5 lakh, the subscribers can choose a lump sum feature withdrawal.
Pre-60 Years Withdrawal:
- By the time one attains the age of superannuation or 60 years, at least 80% of the corpus accrued in the pension by the subscriber should be used to procure an Annuity for a regular monthly income.
- If the total corpus is not more than ₹2.5 lakhs, then a 100% lump sum withdrawal option is available for the subscriber.
Death of Subscriber:
- The entire corpus is conveyed to the beneficiary/ legal heirs.
- Required documents:
- Beneficiary’s ID
- Death certificate, etc.
Types of Withdrawal Forms Available Under the NPS scheme
Below is a breakdown of the withdrawal forms available under the NPS scheme, categorized by the reason for withdrawal:
-
NPS Scheme Withdrawal Forms on Superannuation
Form Applicable For Form 101 GS For government retirees’ withdrawals. Form 301 For corporate and public withdrawals post-superannuation. Form 501 Swavalamban sector withdrawals on superannuation. -
NPS Scheme Withdrawal Forms Before Superannuation
Form Applicable For Form 102 GP Used by government employees who want to make a withdrawal before retirement. Form 302 Used by corporate employees and other citizens who want to make a withdrawal before superannuation. Form 502 Subscribers who are part of the Swavalamban sector. -
NPS Scheme Withdrawal Form For Claimants on Demise of the Subscriber
Form Applicable For Form 103 GD For NPS subscribers, government employees’ beneficiaries/heirs are to claim the accumulated amount. Form 303 For NPS subscribers, corporate employees, and citizens’ beneficiaries/heirs are to claim the accumulated amount. Form 503 For Swavalamban sector subscribers’ beneficiaries/heirs to claim the accumulated amount.
Key Takeaway
The National Pension Scheme of India, in its essence, is a vital initiative by the government of India, created in a bid to offer long-term financial welfare to its citizens after retirement. This scheme provides a reliable and regulated channel for citizens to systematically save a corpus for their retirement. Hence, it is critical to the establishment of a credible retirement planning infrastructure for the citizens and the people to save for a future that builds their resilience against a financially volatile time ahead.
FAQ:-
1. What is the National Pension Scheme (NPS)?
The NPS is a voluntary, long-term retirement savings plan that helps individuals systematically save and invest for financial security after retirement.
2. Who can invest in NPS?
Any Indian citizen aged 18 to 65 can subscribe to NPS, including salaried employees, self-employed professionals, and others.
3. How does NPS work?
Subscribers contribute regularly to their NPS account. The accumulated corpus grows through investments in equity, corporate bonds, and government securities, and can be partially withdrawn at retirement.
4. What are the withdrawal rules for NPS?
Up to 60% of the retirement corpus can be withdrawn tax-free. The remaining 40% must be used to purchase an annuity to ensure a regular income after retirement. If the total corpus is below ₹5 lakh, subscribers can choose whether to withdraw it.
5. What is an annuity under NPS?
An annuity is a financial product purchased with part of the NPS corpus to provide a regular income after retirement. NPS offers different options like single-life annuity, annuity with spouse coverage, guaranteed-period annuity, or annuity with return of capital.
6. What are the tax benefits of NPS?
Contributions to NPS are eligible for tax deduction under Section 80C (up to ₹1.5 lakh) and an additional deduction of ₹50,000 under Section 80CCD(1B).
7. Can I withdraw NPS funds before retirement?
Premature withdrawals are allowed under certain conditions, such as for medical emergencies, higher education, or purchasing a house, but there are limits on the amount and frequency.
8. Who regulates NPS?
NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) to ensure security and transparency.
