Quick Answer: NPS (National Pension System) offers additional ₹50,000 deduction under Section 80CCD(1B) over and above the ₹1.5L 80C limit. At retirement (60 years), 60% of corpus can be withdrawn tax-free; 40% must be used to buy an annuity (annuity income is taxable). Employer NPS contribution up to 10% of basic salary is deductible under 80CCD(2) — available even under the New Tax Regime.
NPS — The Triple Tax Advantage Retirement Plan
National Pension System (NPS) is India's government-backed pension scheme regulated by PFRDA. It offers market-linked returns and unique triple tax benefits — making it one of the most tax-efficient retirement products in India for those in higher tax brackets.
NPS Tax Benefits
| Section | Benefit | Max Deduction |
|---|---|---|
| 80CCD(1) | Employee / self-contribution (within 80C ₹1.5L) | 10% of salary / 20% of gross income |
| 80CCD(1B) | Additional over 80C limit | ₹50,000 |
| 80CCD(2) | Employer contribution (old regime) | 10% of salary (14% for Govt) |
Frequently Asked Questions
At 60, you can withdraw up to 60% of the NPS corpus tax-free as lump sum. The remaining 40% must be used to purchase an annuity plan from an empanelled insurance company. The annuity generates regular monthly pension. You can defer withdrawal till 75.
Yes. Self-employed individuals can open NPS under Tier I (with 80CCD(1B) benefit) and contribute up to 20% of gross income under 80CCD(1). The ₹50,000 additional deduction under 80CCD(1B) applies to all taxpayers including the self-employed.