The National Pension System (NPS) is a low-cost, government-regulated way to build a retirement corpus — with a tax break you can't get anywhere else. Here's how it works and where the trade-offs are.
How it works
You contribute regularly into a mix of equity and debt (you choose the allocation or let it auto-adjust with age). It's among the lowest-cost investment products in India. The money is locked until age 60.
The tax advantage
Beyond the ₹1.5 lakh 80C limit, NPS gives an extra ₹50,000 deduction under Section 80CCD(1B) — a tax break no other product offers. For someone in the 30% slab, that's up to ₹15,000 saved a year.
At retirement
At 60, you can withdraw up to 60% as a tax-free lump sum; the remaining 40% must buy an annuity (a regular pension), which is taxable as income. That mandatory annuity is the main catch — it locks part of your corpus into a pension.
Project your NPS corpus and pension in the NPS calculator.
Where to go next
FAQs
NPS offers an additional ₹50,000 deduction under Section 80CCD(1B), over and above the ₹1.5 lakh 80C limit — a tax break unique to NPS. In the 30% slab that's up to ₹15,000 of tax saved a year (old regime).
NPS returns depend on your equity/debt mix and have historically run roughly 9–11% per year for equity-tilted choices, though they vary and aren't guaranteed. Its very low costs help long-term returns.
No — at 60 you can take up to 60% as a tax-free lump sum, but at least 40% must be used to buy an annuity that pays a regular (taxable) pension. That mandatory annuity is NPS's main limitation.
Educational information, not financial advice. Figures are illustrative and assume the stated return or rate; actual outcomes vary and aren't guaranteed. Run your own numbers before deciding.