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National Pension System

National Pension System (NPS) is a government backed retirement scheme which facilitates regular income to the investor post his/her retirement. Under NPS the contribution of the investor is invested in market linked instruments such as debt and equities. Any Indian citizen between the age group of 18-60 years can open the National Pension System account.

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What Is The National Pension System?

National Pension System (NPS) is a retirement savings scheme launched by the government of India that facilitates regular income post retirement to the subscribers. This scheme is governed by the Pension Fund Regulatory and Development Authority (PFRDA). This scheme is designed to enable subscribers to build a corpus for their future through systematic savings during their employment years. NPS encourages a habit of disciplined savings for creating a retirement corpus for the future. This scheme was launched in an attempt to find a sustainable solution to provide income to people who have retired.

The contribution made towards the NPS account is invested in market linked investment instruments such as equity and debt. NPS is open to all employees working in different sectors like public, private and unorganized sectors.

National Pension System Benefits

Below mentioned are some benefits of investing in National Pension System:

1. Returns on Investments: Part of the contributions made towards NPS is invested in equities which offer returns that are much higher than other investment options such as PPF. Under this scheme the rate of interest offered is between 8-10%, which is suitable for investors who want to build a corpus for a financially secure life post their retirement.

2. Tax Benefits: One can avail tax benefits by investing in the National Pension System. The contributions made towards NPS account are eligible for tax exemptions for upto Rs. 1.5 Lakh under Section 80C of the Income Tax Act, 1961. Furthermore, under NPS the contributions made by both the employer and employee are eligible for tax exemptions.

3. Risk Assessment: Currently, equity exposure for the National Pension Scheme has a cap between the range of 75% to 50%. For the government employee the cap is 50%. Within the prescribed range, the equity portion shall be reduced by 2.5% yearly, starting from the year in which the investor completes 50 years of age.

4. Premature Withdrawals: As NPS is a retirement scheme, it becomes mandatory for the investor to keep investing in NPS till the age of 60 years. However, partial withdrawals are allowed under NPS after 3 years from the date of opening an account. Under the premature withdrawal facility of the National Pension System, the subscriber can withdraw upto 25% of the contributions made.

5. Withdrawals After 60: The subscribers cannot withdraw the entire corpus after their retirement, it is compulsory to keep at least 40% of the entire corpus to be able to receive a regular pension from PFRDA registered insurance company. The remaining 60% of the corpus is tax-free.

Types Of National Pension System Accounts

There are two types of accounts under the National Pension System (NPS). Tier I is a default account while Tier II is a voluntary addition. Mentioned below are the details of the two accounts:


Tier I Account

Tier II Account


Default Account

Voluntary Account


Withdrawals are not permitted under this type of account

Withdrawals are permitted under this type of account

Minimum Contribution

Rs. 500

Rs. 250

Maximum Contribution

No limit

No limit

Eligibility Criteria Of National Pension System

Below mentioned is the eligibility criteria of investing in National Pension System:

  • Any citizen of India can apply for and open the NPS account.
  • Anybody between the age of 18 to 65 years can open a NPS account.
  • The applicant must be KYC compliant.
  • There should not be an existing account of the applicant.

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