NPS: Key Points and Impact

When reading NPS: Key Points and Impact, the important part is to keep the core facts intact while presenting the context in a clearer way for readers.

What This Update Means

Readers should treat this as a tax and compliance update, not as personal advice.

Key Reader Takeaways

• The issue is understanding complex NPS rules, tax benefits, and recent updates.
• The framework clarifies withdrawal flexibility, tax treatment, and eligibility….
• NPS 2025-26: Save Up to ₹2 Lakh in Tax, Build a Secure Retirement – Complete Guide with Latest PFRDA Amendments The National Pension Scheme (NPS) is a government-sponsored, long-term voluntary retirement savings scheme designed to help Indian citizens build a retirement corpus systematically.
• Regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and backed by the Central Government, NPS offers market-linked returns, significant tax advantages, and portability across employers and geographies.

LAMORC DIGITAL Context

The detailed section below preserves the source-backed information so readers can review the full context and important details in one place.

NPS 2025-26: Save Up to ₹2 Lakh in Tax, Build a Secure Retirement – Complete Guide with Latest PFRDA Amendments

The National Pension Scheme (NPS) is a government-sponsored, long-term voluntary retirement savings scheme designed to help Indian citizens build a retirement corpus systematically. Regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and backed by the Central Government, NPS offers market-linked returns, significant tax advantages, and portability across employers and geographies.

Open to employees in the public, private, and unorganised sectors (excluding armed forces personnel), NPS allows subscribers to invest at regular intervals during their working years and draw a pension post-retirement. In recent years, the Government has also introduced NPS Vatsalya – an extension that lets parents open NPS accounts for minor children – and the Unified Pension Scheme (UPS) for central government employees.

This article presents a holistic overview of NPS – covering its structure, eligibility, withdrawal rules (including recent PFRDA amendments), tax benefits under both the Old and New Tax Regimes, and a comparison with the newly launched UPS. All provisions are based on the Income Tax Act, 1961, as applicable for FY 2025-26 (AY 2026-27).

2. Key Highlights & Recent Amendments

The PFRDA has recently amended NPS withdrawal rules through an official notification. The major changes are:

4. Eligibility Criteria

Any individual satisfying the following conditions is eligible to subscribe to NPS:

5. Types of NPS Accounts – Tier-I & Tier-II

NPS offers two types of accounts: Tier-I and Tier-II. A subscriber must open a Tier-I account before being allowed to open a Tier-II account.

6. Key Features of NPS

6.1 Market-Linked Returns

Unlike fixed-return instruments such as PPF or NSC, NPS returns are linked to the performance of the underlying assets. Historically, NPS has delivered annualised returns in the range of 11% to 20%, making it one of the better-performing long-term retirement instruments. The actual return depends on the asset allocation chosen, the fund manager selected, and the duration of investment.

6.2 Investment Choices

Subscribers can choose from two modes of investment:

6.3 Flexibility & Portability

6.4 Low Fund Management Charges

NPS is recognised for its very low fund management charge (FMC), which is among the lowest in the Indian financial product landscape. This allows a greater portion of contributions to remain invested and compound over time.

NPS Vatsalya is a dedicated variant of NPS that allows parents or guardians to open an NPS account for their minor children and make regular contributions. Once the child turns 18, the NPS Vatsalya account can be seamlessly converted into a standard NPS account. Following Budget 2025, all tax benefits applicable to NPS – including deductions under Sections 80CCD(1) and 80CCD(1B) – have been extended to NPS Vatsalya accounts, making it an attractive long-term wealth-building tool for children.

8. Withdrawal Rules (Post PFRDA Amendment)

8.1 For Government Employees

8.2 For Non-Government Employees

8.3 Partial Withdrawal

Subscribers can partially withdraw up to 25% of their own contributions (self-contributions only, excluding employer contributions) after completing three years of NPS membership. Such withdrawals are permitted for specific purposes prescribed by PFRDA, including:

A maximum of three partial withdrawals are allowed throughout the subscription period.

8.4 Upon Death of Subscriber

In the unfortunate event of the subscriber’s death before reaching the age of superannuation, the entire accumulated pension corpus is paid out to the nominee or legal heir. The nominee or family members also have the option to purchase an annuity if they so choose.

9. Tax Benefits Under NPS – Old Regime vs New Regime

One of the most frequently asked questions about NPS is: which tax benefits apply under the Old Tax Regime and which under the New Tax Regime (Section 115BAC)? The table below provides a clear, at-a-glance answer, followed by detailed explanations.

Note: This article is based on the Income Tax Act, 1961, as applicable for FY 2025-26 (AY 2026-27). It covers provisions under both the old and new tax regimes within the existing Act. The proposed New Income Tax Bill 2025 (once enacted) may alter some provisions.

9.1 Deduction Under Section 80CCD(1) – Self-Contribution

9.2 Additional Deduction Under Section 80CCD(1B)

Over and above the Rs. 1.5 lakh limit under Section 80CCE, an additional deduction of up to Rs. 50,000 is available under Section 80CCD(1B) for contributions made to NPS Tier-I account. This brings the total possible NPS-related self-contribution deduction (for salaried employees under the old regime) to Rs. 2 lakh per annum. This benefit is not available under the new tax regime.

9.3 Employer’s Contribution – Section 80CCD(2)

Employer contributions to NPS on behalf of an employee are separately deductible under Section 80CCD(2) and are NOT subject to the Rs. 1.5 lakh ceiling of Section 80CCE. This benefit is available under both regimes:

Practical Tip: Even if you opt for the new tax regime and forego most deductions, you can still benefit from NPS by requesting your employer to route a portion of your CTC through the employer’s NPS contribution. Up to 14% of Basic + DA contributed by the employer is fully deductible under the new regime.

9.4 Tax Treatment on Withdrawal

Partial Withdrawal: Partial withdrawals up to 25% of self-contributions are fully exempt from tax under Section 10(12B) of the Income Tax Act, subject to PFRDA-prescribed conditions. This exemption applies regardless of the tax regime chosen.

Lump-Sum Withdrawal at Maturity: 60% of the total NPS corpus withdrawn as a lump sum at the age of 60 or superannuation is exempt from income tax under Section 10(12A). This exemption is available under both regimes.

Annuity Purchase: The amount used to purchase an annuity at retirement is exempt from tax at the time of purchase under Section 80CCD(5). However, the annuity income received subsequently is taxable as per the applicable income tax slab rates under Section 80CCD(3), irrespective of regime.

9.5 NPS Tier-II Tax Benefits – Section 80C

Government employees who contribute to NPS Tier-II accounts with a minimum 3-year lock-in can claim a deduction under Section 80C up to Rs. 1.5 lakh. This benefit is not available to private sector employees or to anyone opting for the new tax regime.

10. NPS vs UPS – A Comparison

The Central Government launched the Unified Pension Scheme (UPS) as an option available under NPS, effective from April 1, 2025. Unlike NPS where pension is market-linked, UPS guarantees a defined monthly pension upon completion of a minimum service period. Below is a comparison of the two schemes:

Government employees already covered under NPS can opt for UPS. Even those who have already retired under NPS can choose to migrate to UPS. It is important to note that UPS is exclusively available to Central Government employees, while NPS remains open to all Indian citizens.

11. How to Open an NPS Account

Opening an NPS account online takes approximately 30 minutes through the eNPS portal ( http://enps.nsdl.com). The following is a summary of the process:

Alternatively, subscribers can open an NPS account offline through any Point of Presence (PoP) – typically banks and post offices empanelled by PFRDA.

12. NPS Login & Customer Care

Existing subscribers can log in to manage their NPS account through two authorised CRA (Central Recordkeeping Agency) portals:

In both cases, the PRAN serves as the User ID. Subscribers can view statements, change fund managers, update nominees, and initiate withdrawal requests online.

NPS Call Centre: 1800 110 708 (Toll-Free) | For registered subscribers: 1800 222 080

NPS SMS Service: SMS ‘NPS’ to 56677

13. Other Advantages of NPS

The National Pension Scheme is one of the most tax-efficient and cost-effective retirement planning instruments available to Indian citizens today. With a potential tax deduction of up to Rs. 2 lakh per year for salaried employees (and up to 14% of salary from employer contributions under the new regime), market-linked returns historically in the double digits, and recently enhanced withdrawal flexibility, NPS deserves serious consideration in any individual’s long-term financial plan.

However, investors with a higher equity appetite might also explore Equity Linked Savings Schemes (ELSS) or direct equity mutual funds for a portion of their retirement corpus. The ideal approach is to use NPS as the core retirement vehicle – leveraging its tax benefits and disciplined structure – while complementing it with other instruments based on individual risk tolerance.

For government employees, the newly introduced UPS provides an attractive defined-benefit alternative within the NPS framework, offering predictability and income security in retirement.

This article is prepared for general informational purposes only and does not constitute professional legal, tax, or financial advice. The information is based on provisions in force as of April 2026. Readers are advised to consult a qualified Chartered Accountant or tax advisor before making any investment or tax-planning decisions. The author and publisher shall not be liable for any loss arising from reliance on this art

Readers should treat this as a tax and compliance update, not as personal advice.

This article is for general information based on available source information. It should not be considered legal, tax, investment, or financial advice.