What is NPS?

The National Pension System (NPS) is a voluntary, defined-contribution retirement scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). You contribute during your working years; at retirement (age 60), you use the corpus to secure a regular income.

How NPS Works

  • Open an NPS account via your bank, financial advisor, or the eNPS portal.
  • Your money is managed by PFRDA-registered pension fund managers (SBI Pension, UTI, HDFC, ICICI, etc.).
  • Choose Active Choice (you decide equity/debt allocation) or Auto Choice (allocation shifts with age automatically).
  • Maximum equity allocation: 75% (reduces to 50% as you near 60 in Auto Choice).

    • Tax Benefits

    | Section | Deduction | Cap | |---|---|---| | 80C | Employee contribution | ₹1.5 lakh (shared with other 80C investments) | | 80CCD(1B) | Additional NPS contribution | ₹50,000 over and above 80C limit | | 80CCD(2) | Employer contribution (salaried) | Up to 10% of basic + DA (no cap) |

    Total potential deduction: up to ₹2 lakh+ for salaried individuals.

    At Retirement (Age 60)

  • Withdraw up to 60% of the corpus — fully tax-free.
  • Use the remaining 40% to buy an annuity (mandatory) — taxable as regular income.

    • NPS vs. Other Options

    | | NPS | PPF | ELSS | |---|---|---|---| | Lock-in | Till 60 | 15 years | 3 years | | Returns | Market-linked ~10–12% | ~7.1% (fixed) | Market-linked ~13–15% | | Tax on maturity | 60% tax-free | Fully tax-free | Fully tax-free | | Liquidity | Very low | Low | Low |

    Should You Invest in NPS?

    Yes, if you:

  • Want to maximise tax savings beyond the ₹1.5L 80C limit (use the 80CCD(1B) slot).
  • Are comfortable with a long lock-in (it enforces retirement discipline).
  • Appreciate the low fund management charge (0.01% — among the lowest in the world).

    • > Altius Tip: The ₹50,000 deduction under 80CCD(1B) is one of the most underutilised tax-saving opportunities in India. If you're in the 30% tax bracket, this alone saves ₹15,000+ per year in tax.