The National Pension System (NPS) is a low-cost, government-regulated retirement scheme. Your money is invested in a mix of equity, corporate bonds and government securities, and builds a corpus that you use at 60. Changes notified by PFRDA in December 2025 have made it more flexible.
How NPS works
- You contribute regularly to your Tier I account until 60.
- You choose how much goes into equity (up to 75%) or let it adjust with age automatically.
- At 60 you take part of the corpus as a lumpsum and use the rest to buy an annuity (a lifelong pension).
Tax benefits
| Contribution | Old regime | New regime |
|---|---|---|
| Your own, up to ₹1.5 lakh (within 80C) | Yes | No |
| Your own, extra ₹50,000 | Yes | No |
| Employer's contribution | Yes (up to 10% of salary) | Yes (up to 14% of salary) |
The employer contribution is one of the few deductions still allowed in the new regime. If your company offers corporate NPS, it is well worth using.
What can you withdraw at 60?
For non-government subscribers, the rules notified in December 2025 allow:
- Up to 80% of the corpus as a lumpsum, with at least 20% used to buy an annuity.
- The full amount if your total corpus is ₹8 lakh or less.
- Government employees continue with a minimum 40% annuity.
Tax: only up to 60% of the corpus withdrawn is tax-free. Any lumpsum above that, and the pension you receive from the annuity, is taxed at your slab rate.
An example
A 30-year-old investing ₹5,000 a month until 60, at an assumed 10% return, could build about ₹1.14 crore. If 20% buys an annuity paying 6%, the pension would be about ₹11,400 a month; with 40% in an annuity it would be about ₹22,800 a month. Try different numbers in our NPS Calculator.
Is NPS right for you?
- Good for: long-term retirement saving at very low cost, salaried people with employer NPS, and old-regime taxpayers who want the extra ₹50,000 deduction.
- Keep in mind: money is mostly locked until 60, and returns are market-linked, not guaranteed.
Want to know how NPS fits your retirement plan? Book a free call.
