National Pension System (NPS)
Government retirement scheme with extra tax benefits.
What does it mean? (Simple)
NPS is a retirement savings scheme run by the government. You invest during your working years, and at retirement (age 60), you get a pension.
The main attraction is the extra tax benefit under Section 80CCD(1B): you can claim additional ₹50,000 deduction beyond the ₹1.5 lakh 80C limit.
NPS invests in a mix of equity, bonds, and government securities. You can choose your own allocation or let them decide based on your age.
Example with ₹ numbers
You invest ₹50,000/year in NPS and save ₹15,600 in taxes (at 31.2% bracket). At retirement, you can withdraw 60% as lump sum and must use 40% to buy an annuity (monthly pension).
Common mistakes to avoid
- ⚠️Forgetting the 40% annuity rule at retirement
- ⚠️Not reviewing asset allocation periodically
- ⚠️Ignoring the extra 80CCD(1B) benefit
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⚠️ Educational only: This explanation is for learning purposes. Please consult a financial advisor for personalized advice.