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Retirement and gold

National Pension System (NPS)

A low-cost, government-regulated retirement account that invests in a mix of shares and bonds until you retire.

Read the guide Retirement Corpus
Regulator
Pension Fund Regulatory and Development Authority (PFRDA)
Who can join
Indian citizens aged 18 to 70, including NRIs
Minimum
₹1,000 a year in Tier I
Access
Locked in until 60, with limited partial withdrawals
Risk level: Moderate

Depends on your mix. Equity can be up to 75% for most subscribers, falling as you approach retirement on auto choice.

What is it?

The National Pension System is a defined-contribution retirement scheme. You and, if applicable, your employer contribute during your working life. The money is invested by PFRDA-registered pension fund managers at very low cost, and at retirement you take part as a lump sum and use the rest to buy an annuity that pays a pension.

Tier I is the main pension account with tax benefits and restricted withdrawals. Tier II is an optional, flexible savings account with no withdrawal limits.

How it works

  1. Open an account online (eNPS) or through a bank or point of presence, and get a PRAN.
  2. Choose a pension fund manager and Active choice (set your own equity, corporate bond and government bond mix) or Auto choice (mix shifts to safer assets with age).
  3. Contribute whenever you like, at least ₹1,000 a year in Tier I.
  4. At exit, take the permitted lump sum and buy an annuity with the rest.

Types

Tier I accountThe retirement account. Tax benefits apply; withdrawals before 60 are limited.
Tier II accountOptional and fully flexible, like a low-cost fund account. Generally no tax benefit.
Corporate NPSYour employer contributes as part of your salary package.
NPS VatsalyaAn account opened by parents for a minor child, which converts to a regular NPS account at 18.

Benefits and risks

Benefits

  • Among the lowest-cost long-term investment products in India.
  • Extra tax deductions, including an exclusive ₹50,000 deduction under the old regime.
  • Employer contributions are deductible even under the new regime, within limits.
  • Built-in discipline: money stays invested for retirement.

Risks and drawbacks

  • Long lock-in with limited early withdrawals.
  • Part of the corpus above the small-corpus limit must buy an annuity, and annuity income is taxable.
  • Equity exposure is capped, so long-term growth may be lower than a pure equity portfolio.

How it is taxed

  • Own contributions: deduction up to ₹1.5 lakh (shared limit) plus an extra ₹50,000, under the old regime.
  • Employer contributions: deductible within set limits of salary under both regimes.
  • At exit, the lump sum up to the permitted limit is tax-free; pension from the annuity is taxed at your slab rate.
Rules for FY 2026-27, reviewed November 2026. Surcharge and cess apply on top. Tax rules change, so confirm before you file. Our tax team can help with your return.

Who it may suit

Salaried and self-employed people who want a low-cost, disciplined retirement account and value the extra tax benefits, alongside other investments for flexibility.

Getting started

  1. Open an account through eNPS or your bank with PAN and Aadhaar.
  2. Choose a pension fund manager and Active or Auto choice.
  3. Set up a monthly contribution or ask your employer about corporate NPS.
  4. Review your fund manager's performance and your mix every year.

Common questions

How much can I take as a lump sum when I exit at 60?

Under rules effective December 2025, non-government subscribers with a corpus up to ₹8 lakh can take it all. Above ₹12 lakh, up to 80% can be taken as a lump sum and at least 20% must buy an annuity, with options in between. Check PFRDA's current rules before you exit.

Can I leave NPS before 60?

Yes, after the minimum period. For a corpus above ₹5 lakh, only up to 20% can be taken as a lump sum and at least 80% must buy an annuity.

This guide is general education, not investment, tax or legal advice, and does not recommend any product. Investments in securities markets are subject to market risks; read all related documents carefully before investing.