NPS FAQ's

The National Pension Scheme (NPS) is a government-backed retirement savings scheme designed to provide regular income post-retirement. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

NPS is open to all Indian citizens aged 18-70, including NRIs. Both salaried and self-employed individuals can invest.

A Tier 1 NPS account is the primary retirement account with tax benefits. It has restrictions on withdrawals until retirement age (60 years), except under specific conditions.

A Tier 2 NPS account is a voluntary savings account linked to your Tier 1 account. It offers flexibility in withdrawals but does not provide the same tax benefits as Tier 1.

For Tier 1, the minimum annual contribution is ₹1,000. For Tier 2, the minimum initial deposit is ₹1,000, with subsequent contributions of at least ₹250.

Partial withdrawals are allowed under specific conditions, such as for higher education, marriage, or medical emergencies, but only after 3 years of account opening and up to 25% of contributions.

Tier 1 contributions qualify for tax deductions under Section 80CCD(1) up to ₹1.5 lakh, Section 80CCD(1B) for an additional ₹50,000, and Section 80CCD(2) for employer contributions (up to 10% of salary).

At maturity, 60% of the corpus is tax-free, while the remaining 40% must be used to purchase an annuity, which is taxable as income.

An annuity is a financial product that provides regular income post-retirement. At maturity, 40% of the NPS corpus must be used to buy an annuity from a PFRDA-approved insurer.

At maturity (age 60), you can withdraw 60% of the corpus tax-free. The remaining 40% must be used to purchase an annuity. You can also defer withdrawals or continue contributing until age 70.

Returns vary based on the investment option (Equity, Corporate Bonds, Government Securities, or Alternative Assets). Historically, NPS has delivered 8-10% annual returns over the long term.

NPS is subject to market risks, especially in equity investments. The annuity returns depend on the insurer, and the corpus is not fully liquid until retirement.