NPS by PensionBox: Your path to a secure retirement

Retirement is that phase of your life that is crammed with expectations and aspirations. To achieve these goals and to lead a prosperous and flourishing life, a strict plan needs to be put in place. Planning for a secure and comfortable retirement is one of the most important aspects of financial management. There's no doubt there's a plethora of options available. Among the various retirement savings options available in India, the National Pension Scheme (NPS) is undoubtedly one of the most acknowledged options and stands out as a diverse and effective solution. The scheme was launched by the Government of India in 2004 and made available to all citizens in 2009.

NPS is a voluntary, defined contribution pension system that is specially designed to offer financial stability post-retirement. It provides a muster of investment options, professional fund management, and tax benefits. NPS also provides a comprehensive approach to retirement planning. In this article, we shall explore the intricacies of the National Pension Scheme. We shall also look at the types of NPS accounts, and investment options, and why they could be an essential component of your financial strategy.

What is NPS?

The National Pension System (NPS) is a voluntary, defined contribution towards savings for retirement that enables subscribers to make the right decision for the future by generating savings throughout their lives. NPS is a defined contribution towards retirement savings schemes through which subscribers can take a step forward towards increasing savings for life after retirement. NPS focuses on empowering citizens and inculcating in them the habit of saving for retirement. It is an attempt to find a long-term solution to the problem of providing adequate retirement income savings to every Indian citizen.

The NPS (National Pension Scheme) is a great way to save for retirement. Anyone in the age group of 18–70 years, public or private employee, resident or non-resident, can become a part of the National Pension Scheme program. Section 80CCD(2) of the Income Tax Act covers the contribution of an employee to the NPS. Section 80C of the Income Tax Act covers the tax deduction of ₹1.5 lakh for self-contribution to the National Pension Scheme. Section 80CCD(1B) of the Income Tax Act covers the additional deduction of ₹50,000, which is allowed if a contribution is made towards the NPS.

Hence, if you are planning your finances to save for the future and have a peaceful life after retirement, you must take this into account. To know more about NPS in detail, you can also visit HERE.

Different types of NPS accounts

NPS offers you two types of investment accounts: the NPS Tier I account and the NPS Tier II account.

1. NPS Tier 1 Account

NPS Tier 1 is a mandatory account if you want to avail of the benefits of the NPS retirement scheme. In a way, it is the primary account under NPS. Features of NPS Tier 1 Account

• 1. Tax-related benefits: If you invest in NPS Tier 1, you can avail of the benefits of tax deductions under Section 80C up to ₹1.5 lakh per annum and an additional ₹50,000 under Section 80CCD(1B).
• 2. Lock-in Period: In the NPS Tier 1 system, withdrawals are restricted until the individual attains the age of 60.
• 3. Investment Options: There are a plethora of pension fund managers and investment options available to individuals who opt for NPS Tier 1. This includes equity, government bonds, and alternative investment funds.
• 4. Withdrawal Rules: When the individual reaches the age of 60, they can withdraw up to 60% of the corpus. This is tax-free. The remaining 40% must be used to buy an annuity, which would provide regular pension income.

Update — NPS exit rules changed in December 2025. The 60% / 40% split described above was the rule up to that point. It is left here on purpose, because a lot of older paperwork and third-party calculators still quote it. Under the PFRDA (Exits and Withdrawals under NPS) Amendment Regulations notified on 16 December 2025, a non-government subscriber (All Citizen and Corporate NPS) taking normal exit can now withdraw up to 80% as a lump sum, with a minimum 20% annuity. By corpus: up to ₹8 lakh — the entire amount can be withdrawn; above ₹8 lakh and up to ₹12 lakh — up to ₹6 lakh as lump sum, with the balance going into an annuity or a Systematic Unit Redemption spread over at least six years; above ₹12 lakh — up to 80% lump sum with a minimum 20% annuity. For premature exit there is no longer any minimum subscription period, and a corpus up to ₹5 lakh can be taken in full. One caution on tax, because it is a separate question from the withdrawal limit: Section 10(12A) exempts 60% of the corpus, and whether the extra 20% of lump sum is tax-free has not been settled — do not plan around it without checking. (Source: PFRDA FAQs on Exits and Withdrawals from NPS, All Citizen Model, updated March 2026.)

• 5. Minimum balance: You can open an NPS Tier 1 account with ₹500, but you are required to make a minimum contribution of ₹1000 annually to keep your account active.

2. NPS Tier 2 Account

NPS Tier II accounts are optional. You can choose to open an NPS Tier II account only after you have opened a Tier I account. Features of NPS Tier 2

• 1. No Tax Benefits: Contributions to Tier 2 do not qualify for any tax deductions under the Income Tax Act. However, you can still avail of tax benefits for contributions made to your NPS Tier 1 account.
• 2. No Lock-in Period: There is no lock-in period for Tier 2. Individuals who have opted for NPS Tier 2 can choose to withdraw funds at any time.
• 3. Investment Options: Just like NPS Tier 1, there are a plethora of pension fund managers and investment options available to individuals who opt for NPS Tier 1 as well.
• 4. Transfer rules: You have the option to transfer funds from your NPS Tier II account to your Tier I account.
• 5. Minimum balance: You do not need to maintain a minimum balance in an NPS Tier II account.

Types of Investment Options

You can invest in NPS in two ways: active or auto. Someone with appropriate knowledge of the market who can distinguish between different investments, choose the best ones, and take responsibility for the allocation of funds can choose the active way of investing. Active choice is the way of investing in which you can make choices as per your preferences.

As the name suggests, an auto-choice is one in which an automatic fund allocation decision is made. This choice is perfect for those who want to avoid any hassle and do not wish to take responsibility for fund allocation themselves.

Additional benefits of NPS

• 1. No fixed contributions: In NPS, you just have to keep your account active by investing a minimum amount of ₹1000 every year. You can also vary your contribution to NPS every month. You can even skip if you want.

• 2. Extra Tax Benefits: Contributions to NPS up to ₹1.5 lakh are eligible for tax exemptions under Section 80C of the Income Tax Act. You are also eligible for an additional tax break. An additional investment of up to ₹50,000 beyond the ₹1.5 lakh investment annually is entitled to tax exemptions under Section 80CCD(1B).

• 3. No third-party involvement: You can open an NPS account yourself electronically without any third-party involvement. NPS is available to salaried individuals as well as freelancers and self-employed individuals.

• 4. Choice of investment: In NPS, you have the liberty to decide where to invest between government bonds, corporate bonds, etc.