Last updated: October 2026 Β· 3 min read
The National Pension System (NPS), regulated by PFRDA, is a low-cost, market-linked retirement scheme open to all Indian citizens aged 18-70. You invest regularly during working years and receive a lump sum and a pension after retirement.
Tier I vs Tier II
| Tier I | Tier II | |
|---|---|---|
| Purpose | Retirement savings | Voluntary savings |
| Withdrawal | Restricted until 60 (partial withdrawals for specific needs) | Anytime |
| Tax benefits | Yes | Generally no (except a tax-saver variant for government employees) |
| Minimum contribution | βΉ1,000 a year | No minimum after opening |
Investment choices
You can choose Active Choice (decide your own mix of equity, corporate bonds, government securities and alternatives, with equity up to 75%) or Auto Choice (life-cycle funds that reduce equity as you age). You can pick from several pension fund managers and switch.
Tax benefits
| Benefit | Old regime | New regime |
|---|---|---|
| Own contribution | Within βΉ1.5 lakh (80CCD(1) within 80C limit) | No |
| Extra own contribution | Up to βΉ50,000 more (80CCD(1B)) | No |
| Employer contribution | Up to 10% of basic + DA | Up to 14% of basic + DA |
Section numbers changed under the Income-tax Act, 2025, but these benefits continue.
Withdrawal at 60
At retirement you can withdraw up to 60% tax-free as a lump sum and must use at least 40% to buy an annuity (pension). If your total corpus is small (within the PFRDA threshold), you may withdraw the full amount. PFRDA has been reviewing exit rules, so check the latest guidelines.
NPS Vatsalya for children
Launched in September 2024, NPS Vatsalya lets parents open an NPS account for a minor with a minimum of βΉ1,000 a year. It converts to a regular NPS account when the child turns 18.
Unified Pension Scheme (UPS)
From 1 April 2025, central government employees covered by NPS can opt for the Unified Pension Scheme, which offers an assured pension of 50% of average basic pay of the last 12 months for 25 years of service.
Frequently asked questions
Is NPS a good investment?
It is a low-cost, disciplined retirement option with tax benefits, but returns are market-linked and money is locked till 60.
Can NRIs open NPS?
Yes, NRIs can open NPS accounts subject to rules.
How do I open an NPS account?
Through eNPS on the NSDL/CRA portals, banks, or Points of Presence using Aadhaar or PAN-based KYC.
Keep exploring
- Atal Pension Yojana
- EPF interest calculation
- Power of compounding
- More PF & Pension articles on Tiwaripedia
This article is for general information, not financial, tax or legal advice. Rates, limits and rules change; always confirm on the official website or with a qualified advisor before you act. Spotted something that needs updating? Let us know.
