Minimum 40% must be used to buy an annuity
What is NPS?
National Pension System (NPS) is a voluntary, long-term retirement savings scheme regulated by PFRDA. Contributions are invested in market-linked instruments and the corpus is used to buy an annuity at retirement.
How is the NPS corpus calculated?
Your monthly contributions grow through compounding over the investment period. At retirement, you can withdraw up to 60% of the corpus as a lump sum (tax-free), and the remaining 40% must be used to purchase an annuity.
What is an annuity in NPS?
An annuity is a financial product purchased from a life insurer using part of your NPS corpus. It pays a fixed monthly pension for life (or a chosen period). The annuity rate determines how much pension you get per rupee invested.
Tax benefits of NPS
NPS offers deductions under Section 80CCD(1) up to ₹1.5L (within 80C limit), plus an additional ₹50,000 under 80CCD(1B). Employer contributions are also deductible under 80CCD(2).