Should you invest in National Pension System (NPS)?

‘Pension’ rhymes with ‘Tension’, What a coincidence right?, Yes ofcourse but the fact is that they’re inversely related. A good pension to support your expenses during retirement will make your dusk years easy and simple. The earlier you start, the better it is for you after retairment. And National Pension System (NPS) is one of the best retairment savings instrument.

The National Pension Scheme (NPS) which was started by the Government of India is a very efficient and flexible retirement savings scheme. While the scheme in the first instance was designed for government employees only, but later it was opened up for all citizens of India in 2009. A person can invest in this scheme as per his requirement.
It is a  instrument in India where 40% of the amount is tax less at maturity, while 60% of the total is taxable. Of the 60% taxable amount, 40% has to be compulsorily used to purchase an annuity.

NPS Contribution and whatever they receive as tax benefit are under Section 80C, Section 80CCC and Section 80CCD(1) of Income Tax Act. An additional tax benefit of Rs 50,000 under Section 80CCD(1b) is provided under NPS, which is over the Rs 1.5 lakh exemption of Section 80C. NPS is now considered as one of the best tax saving instruments because 40% of the corpus was made tax-free at the time of maturity and it is ranked next to Equity-linked savings scheme(ELSS).

Eligibility for National Pension Scheme (NPS)

A citizen of India, whether resident or non-resident can join NPS, conditions are below:

  1. The age of the candidates must be from 18 to 60 years old as of the date of submission of the application form to the Point of Presence (POP).
  2. The subscribers need to complete the Know Your Customer (KYC) application and need to complete the procedure as detailed in the subscriber registration form.
  3. Unwanted bankruptcies and unhealthy minded people do not fall under this policy and they can’t subscribe it.


  1. By December 2016, there was a huge rise in the subscription of holders and aurond 1.4 crore people subscribed for this.
  2. As well as  assets under management rise to  around Rs 1.6 lakh  crore by December 2016. 
  3. 88% of the total is accounted for Government  employees, who were also accountable for 35 per cent of the number of subscribers. 
  4. By March 2016, The total AUM of the NPS Tier II segment was Rs 197 crore. NPS Tier II has more than 34900 subscribers with an average balance of around Rs 54,000.

How to open a Account in NPS? Click Here to Know

Conditions for withdrawal

  1. One can withdraw 20 percent of the total amount before 60 years but he/she must buy annuity with 80 percent of the body.
  2. In 2016, the NPS allowed withdrawal of up to 25% of contributions for specified reasons, if the scheme is at least 3 years old with certain conditions.
  3. A person can withdraw the complete amount but there is a condition that the pension collection is less than INR 2,00,000.

National Pension Scheme Tax benefits

  1. Up to Rs. 150,000 under Section 80CCD(1). The benefit is additionally limited at 10% of basic salary. The benefit under Section 80C, Section 80CCC and Section 80CCD(1) is limited at Rs 150,000.
  2. Contribution Up to Rs 50,000 under Section 80CCD(1B).
  3. Employer whose co-contribution is up to 10% of the basic of their salary and DA without any upper cap in terms of amount is tax free income in hands of employees under Section 80CCD.

Pension fund managers in National Pension Scheme:

  1. SBI Pension Funds
  2. LIC Pension Fund
  3. UTI Retirement Solutions
  4. HDFC Pension Fund
  5. ICICI Prudential Pension Fund
  6. Kotak Pension Fund
  7. Reliance capital Pension Fund

So, to answer the question we asked before, I don’t see a reason not to unless you find out a  better tax free investment. In that case, do let us know about it too.

Thanks for reading. This article was bought to you by Hamari Yojana, an initiative by a Political Science student and a CA student. Stay tuned for more articles like this.If you have any query, drop a comment down below.

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