Learn everything about National Pension Scheme (NPS) 2025 – benefits, eligibility, tax savings, withdrawal rules, returns & how to invest smartly.
1. Introduction – What is NPS?
The National Pension Scheme (NPS) is a government-backed retirement savings plan that allows individuals to systematically invest a portion of their income during their working years. It was first introduced in 2004 for government employees and later extended to all Indian citizens, including private sector employees and self-employed individuals, in 2009.
The aim of NPS is simple:
- To create a retirement corpus.
- To provide regular pension (annuity) after retirement.
- To offer a tax-efficient and flexible investment option for long-term financial security.
2. How Does National Pension Scheme (NPS) Work?
When you open an NPS account, you are allotted a Permanent Retirement Account Number (PRAN). You can contribute monthly, quarterly, or annually to this account.
- Your contributions are invested in Equity (E), Corporate Bonds (C), and Government Securities (G).
- Fund managers manage these investments professionally.
- At the age of 60, you can withdraw a part of the corpus in lump sum, while the rest is converted into a monthly pension (annuity).
3. Types of National Pension Scheme (NPS) Accounts
There are two types of accounts under NPS:
(A) Tier I Account
- Mandatory account for retirement savings.
- Lock-in until age 60.
- Minimum yearly contribution: ₹1000.
- Eligible for tax benefits.
(B) Tier II Account
- Voluntary account with flexible withdrawals.
- No lock-in period.
- No tax benefits.
4. Who is Eligible for National Pension Scheme (NPS)?
- Any Indian citizen (resident or NRI) aged between 18 and 70 years can open an account.
- PAN and Aadhaar are mandatory.
- The applicant must comply with KYC norms.
5. Minimum & Maximum Investment
- Minimum contribution per installment: ₹500.
- Minimum yearly contribution: ₹1000.
- No maximum limit on investment.
- Contributions can be made online or offline, with the option to set up auto-debit.
6. NPS Returns – How Much Can You Earn?
Since NPS is market-linked, returns are not fixed. They depend on fund performance and asset allocation.
- Equity (E): 10–12% annual returns (historical).
- Corporate Bonds (C): 7–9% returns.
- Government Securities (G): 6–8% returns.
👉 Historically, NPS has delivered 8–12% average annual returns in the long term.
7. Tax Benefits of NPS (2025 Updated)
NPS is one of the most tax-efficient investment options under the Income Tax Act:
- Section 80C: Deduction up to ₹1.5 lakh.
- Section 80CCD(1B): Additional deduction of ₹50,000 (exclusive benefit for NPS).
- Section 80CCD(2): Employer’s contribution (up to 10% of salary) is tax-free.
👉 With these, you can save up to ₹2 lakh in taxes every year.
8. National Pension Scheme Withdrawal Rules
At Age 60 (Retirement):
- You can withdraw 60% of the corpus tax-free as lump sum.
- The remaining 40% must be used to buy an annuity plan for monthly pension.
Premature Exit (Before Age 60):
- Only 20% can be withdrawn.
- Remaining 80% must be used to buy annuity.
Partial Withdrawal (Special Cases):
- Up to 25% of contributions can be withdrawn for higher education, marriage, house purchase, or medical treatment.
9. NPS Calculator Example (Tabular Form)
| Particulars | Details |
|---|---|
| Monthly Contribution | ₹5,000 |
| Investment Tenure | 30 years |
| Total Investment | ₹18,00,000 |
| Expected Return Rate | 10% |
| Maturity Corpus | ₹1.13 Crore |
| Lump Sum (60%) | ₹68 Lakh (Tax-free) |
| Pension (40% Annuity) | ~₹25,000/month |
👉 A small monthly investment can create a retirement corpus worth crores.
10. Advantages of National Pension Scheme (NPS)
- Safe & Regulated – Managed by PFRDA (government authority).
- Higher Returns compared to PPF and Fixed Deposits.
- Additional Tax Benefits (₹50,000 extra under 80CCD(1B)).
- Disciplined Retirement Planning with compulsory pension.
- Flexible Investment Choices between equity, debt, and auto allocation.
11. Disadvantages of National Pension Scheme (NPS)
- Lock-in till retirement age (60 years).
- Compulsory annuity purchase reduces lump sum.
- Annuity returns are relatively low (~5–6%).
- Market risk due to equity exposure.
12. How to Open an National Pension Scheme (NPS) Account?
Online (e-NPS Portal)
- Visit https://enps.nsdl.com.
- Select “Registration”.
- Enter Aadhaar/PAN details.
- Fill personal details and upload documents.
- Pay first contribution online.
- PRAN is generated instantly.
Offline (POP – Point of Presence)
- Visit any bank (SBI, ICICI, HDFC) or post office.
- Fill the application form and submit KYC documents.
- PRAN card will be issued.
13. NPS vs PPF vs EPF (Comparison Table)
| Feature | NPS | PPF | EPF |
|---|---|---|---|
| Returns | 8–12% | 7.1% fixed | 8.1% |
| Lock-in | Till 60 yrs | 15 yrs | Till retirement |
| Tax Benefit | ₹2 lakh | ₹1.5 lakh | ₹1.5 lakh |
| Withdrawal | Limited | After 7 yrs | Specific needs |
| Pension | Yes | No | Yes |
14. Who Should Invest in NPS?
- Salaried employees – for tax savings and employer contributions.
- Self-employed professionals – for disciplined retirement planning.
- Young investors (25–35 yrs) – to maximize compounding benefits.
- Anyone without a pension plan – to secure a stable income after retirement.
15. FAQs About NPS
Q1: Can NRIs invest in NPS?
Yes, NRIs can open an NPS account, provided they comply with RBI norms.
Q2: Is NPS better than PPF?
NPS generally gives higher returns and pension, while PPF offers fixed returns.
Q3: Can I change fund managers in NPS?
Yes, you can switch fund managers and asset allocation once a year.
Q4: What happens if I don’t contribute in a year?
Your account may become inactive, but you can reactivate it by paying the minimum contribution and penalty.
Q5: Is NPS pension taxable?
Yes, annuity income (monthly pension) is taxable as per income tax slab.
16. Final Thoughts – Why Choose NPS?
The National Pension Scheme (NPS) is one of the most effective retirement planning tools available today. With its government backing, attractive tax benefits, market-linked returns, and compulsory pension, NPS ensures that you enjoy financial independence after retirement.
If you are looking for a safe, flexible, and tax-efficient way to build your retirement corpus, NPS is one of the best options available in India in 2025.
