Money Basics · Retirement (yes, already)

NPS

NPS (National Pension System) is a government-backed retirement savings scheme regulated by PFRDA (Pension Fund Regulatory and Development Authority). It's underutilised and underappreciated.

How NPS works

You contribute regularly. The funds are managed by PFRDA-appointed pension fund managers. You choose one at account opening and can switch later. On retirement (age 60), you can withdraw 60% of the corpus tax-free and must use 40% to buy an annuity (monthly pension).

Two account types

• Tier 1: mandatory, locked until 60. Tax benefits apply.
• Tier 2: voluntary, fully liquid. No tax benefit. Like a flexible mutual fund.

Investment options

• Auto choice: allocation automatically adjusts with age (more equity when young, more debt when older)
• Active choice: you decide equity/corporate bond/government bond allocation

Maximum equity allocation: 75% for those below 50.

The tax advantage

₹1.5Lunder 80C (combined with other 80C instruments)

₹50,000additional deduction under 80CCD(1B), exclusive to NPS

The ₹50,000 80CCD(1B) deduction is unique to NPS, no other 80C instrument gives this extra benefit. For a 30% bracket earner, it saves an extra ₹15,600/year in tax.

> NPS gives you ₹50,000 extra deduction beyond the ₹1.5L 80C cap. As of July 2026 this deduction sits under the old tax regime. A Budget-set rule that has moved in consecutive years, so check the position for the year you are filing.

The catch

Part of the corpus must be converted into an annuity at exit, and PFRDA cut that slice for non-government subscribers from 40% to 20% in its 2025 amendment to the exit regulations. Subject to conditions on how long you have been in NPS and how big the corpus is. Small corpuses can now be taken entirely in cash, and government subscribers stay at 40%. Watch the tax line separately: only 60% of the corpus is exempt under Section 10(12A), so a larger lump sum is not automatically a tax-free one. Annuity payouts are taxable at slab either way.

Accounts are opened through the eNPS portal or through most banks' internet banking. Named as an example only, not a recommendation.

Takeaway. NPS gives an extra ₹50,000 deduction beyond 80C. Unique to NPS. Good for retirement equity exposure, though a slice of the corpus must still buy an annuity at exit.