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National Pension System
PredecessorOld Pension Scheme
FormationJanuary 1, 2004; 19 years ago (2004-01-01)
TypePension cum investment scheme launched by Government of India
Legal statusRegulated by Pension Fund Regulatory and Development Authority
PurposeProvide defined-contribution based pension for retirees and Extending old age security coverage to all citizens
HeadquartersNew Delhi
  • PFRDA, Chatrapati Shivaji Bhawan, Qutub Institutional Area, Katwaria Sarai, New Delhi-110016
  • NPS-Central Govt.
  • NPS-State Govt.
  • NPS-Corporate Sector
  • NPS-All Citizens of India (since May 1, 2009; 14 years ago (2009-05-01))
  • NPS Lite (since April 1, 2010; 13 years ago (2010-04-01))
  • NPS Swavalamban and
  • Atal Pension Yojana (APY) (since June 1, 2015; 7 years ago (2015-06-01))
Membership (31 Jan 2023)
1,69,74,190 Subscribers
Increase 839,458 crore (US$110 billion) (Jan2023)
Government Sector Subscribers (Jan 2023)
  • Union Govt Employees 23,65,693
  • State Govt Employees 60,32,768
Private Sector Subscribers (Jan 2023)
  • Corporate Employees 16,43,490
  • Unorganized 27,53,941
Other Subscribers (Jan 2023)
  • NPS Swavalamban 41,78,298
  • Atal Pension Yojana 4,44,97,870
Parent organization
NPS Trust
  • Central Record Keeping Agency (CRA)
  • Pension Funds (PFs)
  • Trustee Bank (TB)
  • Points of Presence (PoPs)
  • Custodian
  • Retirement Advisor
  • Annuity Service Provider
Department of Financial Services, Ministry of Finance - Government of India

The National Pension System (NPS) is a defined-contribution pension system in India regulated by Pension Fund Regulatory and Development Authority (PFRDA) which is under the jurisdiction of Ministry of Finance of the Government of India. National Pension System Trust (NPS Trust) established by PFRDA is the registered owner of all assets under this scheme.[1] National Pension System, like PPF and EPF is an EEE (Exempt-Exempt-Exempt) instrument in India where the entire corpus escapes tax at maturity and entire pension withdrawal amount is tax-free.[2]

New Pension Scheme was implemented with the decision of the Union Government to replace the Old Pension Scheme which had defined-benefit pensions for all its employees. Notification No. 5/7/2003-ECB issued by Ministry of Finance (Department of Economic Affairs)’s in a Press Release dated 22 December 2003 mandated NPS for all new recruits (except armed forces) joining government services from 1 January 2004[3] While the scheme was initially designed for government employees only, it was opened up for all citizens of India between the age of 18 and 65 in 2009, for OCI card holders and PIO's in October 2019.[4] On 26 August 2021, PFRDA increased the entry age for the National Pension System (NPS) from 65 years to 70 years. As per the revised norms, any Indian Citizen, resident or non-resident and Overseas Citizen of India (OCI) between the age of 18–70 years can join NPS and continue or defer their NPS Account up to the age of 75 years.[5] It is administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA).[6][7][8][9]

On 10 December 2018, the Government of India made NPS an entirely tax-free instrument in India where the entire corpus escapes tax at maturity; the 40% annuity also became tax-free.[10] Any individual who is Subscriber of NPS can claim tax benefit for Tier-I account under Sec 80 CCD (1) with in the overall ceiling of ₹1.5 lakh under Sec 80 C of Income Tax Act. 1961.[11] An additional deduction for investment up to ₹50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B).[12][6][7][8] The changes in NPS was notified through changes in The Income-tax Act, 1961, during the 2019 Union budget of India.[13] There is no tax benefit on investment towards Tier II NPS Account. NPS is limited EEE, to the extent of 60%.[14] 40% has to be compulsorily used to purchase an annuity, which is taxable at the applicable tax slab.[9]

Contributions to NPS receive tax exemptions under Section 80C, Section 80CCC and Section 80CCD(1) of Income Tax Act. Starting from 2016, an additional tax benefit of Rs 50,000 under Section 80CCD(1b) is provided under NPS, which is over the ₹1.5 lakh exemption of Section 80C.[15][16][17] Private fund managers are important parts of NPS.[18][19][20] NPS is considered one of the best tax saving instruments, after 40% of the corpus was made tax-free at the time of maturity and it is ranked just below equity-linked savings scheme (ELSS).[21]


The National Pension System (NPS) is a voluntary defined contribution pension system administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA), created by an Act of the Parliament of India. The NPS started with the decision of the Government of India to stop defined benefit pensions for all its employees who joined after 1 January 2004. While the scheme was initially designed for government employees only, it was opened up for all citizens of India in 2009. NPS is an attempt by the government to create a pensioned society in India. Today, the NPS is readily available and tax efficient under Section 80CCC and Section 80CCD. Under the NPS, an individual can contribute to his retirement account. Also, his employer can contribute to the welfare and social security of the individual.

NPS is a quasi-EET instrument in India where 40% of the corpus escapes tax at maturity, while 60% of the corpus is taxable.[6][7][8] Of the 60% taxable corpus, 40% is tax-exempt as it has to be compulsorily used to purchase an annuity.[9] The annuity income will be taxed, though. The remaining 20% alone will now be taxed at slab rates on withdrawal.[22] In 2017 Union budget of India, 25% exemption of the contribution made by an employee has been announced as a form of premature partial withdrawal in NPS.[23] This amendment will take effect on 1 April 2018 and will, accordingly, apply in relation to the assessment year 2018-19.[24][25] NPS is a market-linked annuity product.[26]

Regulatory framework

In 1999 the Government of India commissioned a national project, OASIS (an acronym for "old age social and income security"), to examine policies related to old age income security in India. Based on the recommendations of the OASIS report, the Government of India introduced a new Defined Contribution Pension System for the new entrants to Central/State Government service, except to the Defence forces i.e. Army, Navy and Air Force, replacing the existing system of the Defined Benefit Pension System.

On 23 August 2003, the Interim Pension Fund Regulatory & Development Authority (PFRDA) was established through a resolution by the Government of India to "promote old age income security by establishing, developing and regulating pension funds, to protect the interests of subscribers to schemes of pension funds and for matters connected therewith or incidental thereto." The Pension Fund Regulatory & Development Authority Act was passed on 19 September 2013 and notified on 1 February 2014, thus setting up PFRDA as the regulator for pension sector in India. However, there remains a considerable amount of confusion with other entities like the Employee Provident Fund, pension funds run by life insurers, and mutual fund companies being outside the purview of PFRDA.

The contributory pension system was notified by the Government of India on 22 December 2003, now named the National Pension System (NPS) with effect from 1 January 2004. The NPS was subsequently extended to all citizens of the country with effect from 1 May 2009, including self-employed professionals and others in the unorganized sector on a voluntary basis.


Unlike traditional financial products where all the functions (sales, operations, service, fund management, depository) are done by one company, NPS follows an unbundled architecture where each step of the value chain has been made disjointed from the other. This unbundling not only allows the customer to mix and match his providers of service through the value chain, picking the best-suited option, but it also curbs the incidence of misselling.

NPS architecture consists of the NPS Trust, which is entrusted with safeguarding subscribers' interests, two privately owned Central Recordkeeping Agencies (CRAs), which maintain the data and records, Point of Presence (POP) as collection, distribution and servicing arms, pension fund managers (PFM) for managing the investments of subscribers, a custodian to take care of the assets purchased by the fund managers, and a trustee bank to manage the banking operations. At age 60 the customer can choose to purchase pension Annuity Service Providers (ASP). NPS investors can't opt for two pension fund managers, neither can switch to another pension fund before a year. In 2017, PFRDA increased the entry age in NPS to 70 years[27].[28]

The number of pension fund managers (PFM) has increased to seven in NPS:[29][30] SBI Pension Funds is the largest pension fund manager (PFM) in India and its assets under management(AUM) level is ₹61,000 crore.[31]

At present, central government employees have no say in the matter of choice of fund manager or investment allocation in NPS, as both are decided by the government. All the NPS contributions of Central government employees are being distributed evenly across three public sector fund managers :LIC Pension Fund, SBI Pension Fund and UTI Retirement Solutions.

All the major commercial banks, brokers and stock holding corporations perform the role of PoP. The subscriber can choose any one of them. There are seven fund managers and eight annuity service providers for subscribers to choose from. The subscriber can choose to invest either, wholly or in combination, in four types of investment schemes offered by the pension fund managers. These are:

Alternatively, the subscriber can opt for the default scheme, whereas per the time left to retirement his portfolio is rebalanced each year for the proportion of equity, corporate bonds, and government bonds.

NPS offers two types of accounts to its subscribers:

The contribution to voluntary savings account (also called Tier-II account) can only be made by the subscriber and not by any third party.[33]

PFRDA introduced new features to NPS in 2016, including more choices to lifecycle funds:[34]

The regulator add a new asset class Alternative Investment Funds (AIF) to the existing menu of equities, government securities and corporate bonds, available on NPS.

Who can join

A citizen of India, whether resident or non-resident or an OCI card holder can join NPS (Through a circular issued on 29 October 2019 PFRDA has stated that now Overseas Citizen of India (OCIs) can enrol to invest in NPS tier-1 accounts), subject to the following conditions:

Subscriber base

The Central government employee subscribers grew 4.9% on year to 2.28 million in FY22 while state governments subscribers grew 8.5% to 55.8 lakh during the year. The total number of subscribers as of March 31, 2022, was 5.2 crore, up 23% from a year ago. Total NPS assets under management stood at ₹7,36,000 crore as of March 31, 2022, up from ₹5,78,000 crore as on March 31, 2021[39]


Premature withdrawal in NPS before age 60 required parking 80% of the sum in an annuity.[40] One can withdraw 20 percent of the corpus before 60 years but he/she must buy annuity with 80 percent of the corpus.[41] In 2016, the NPS allowed withdrawal of up to 25% of contributions for specified reasons, if the scheme is at least 3 years old with certain conditions. One can withdraw the complete amount if the pension collected is less than ₹5,00,000.[42] This amount was increased to ₹5,00,000 as per PFRDA Circular dated 14 June 2021.[43]

Tax benefits

Investment in NPS is eligible for tax benefits as follows:

See also


  1. ^ "What is National Pension System?". Protean eGov Technologies Limited. Retrieved 20 February 2023.
  2. ^ Prasad, Gireesh Chandra (10 December 2018). "Govt brings NPS on a par with PF, makes it tax-free". mint.
  3. ^ "Reversion to old pension scheme". Ministry of Personnel, Public Grievances & Pensions. New Delhi: Government of India. Press Information Bureau. 19 July 2018. Retrieved 20 February 2023.
  4. ^ "National Pension System - Retirement Plan for All". National Portal of India. Retrieved 12 July 2018.
  5. ^ "Subject: Increase of Entry Age up to 70 Years under NPS" (PDF). 26 August 2021. Retrieved 7 September 2021.((cite web)): CS1 maint: url-status (link)
  6. ^ a b c Nathan, Narendra (28 November 2016). "How good is the recently revamped NPS?". The Economic Times.
  7. ^ a b c Motiani, Preeti (29 December 2016). "NPS: Now you can open a NPS account completely online via Aadhar without sending physical documents - The Economic Times". The Economic Times. Retrieved 17 January 2017.
  8. ^ a b c "Tax parity for NPS and EPF members is a welcome step - The Economic Times". The Economic Times. 7 January 2017. Retrieved 17 January 2017.
  9. ^ a b c "Budget 2017: Arun Jaitley likely to make National Pension system totally tax-free". 16 January 2017. Retrieved 17 September 2017.
  10. ^ "Streamlining of National Pension System (NPS)".
  11. ^ "npscra tax benefits".
  12. ^ Staff Writer (10 December 2018). "NPS withdrawal made tax-free like PPF, EPF". mint.
  13. ^ Saleem, Shaikh Zoaib (12 December 2018). "Tax treatment of NPS set to change". mint.
  14. ^ "Scrap the NPS annuity: Makes more sense to go for systematic withdrawal plan". 12 December 2018.
  15. ^ "10 things Arun Jaitley can do to make it a Budget for the middle class". The Economic Times. 17 September 2017. Retrieved 17 September 2017.
  16. ^ "Opinion: 5-step plan to make NPS work". The Economic Times. 28 November 2016.
  17. ^ "Salaried Vaz can cut tax outgo by investing in NPS". The Economic Times. 17 September 2017. Retrieved 17 September 2017.
  18. ^ Bhaskaran, Deepti (27 November 2016). "Time to up your equity investment in NPS?". mint.
  19. ^ Nathan, Narendra (29 December 2016). "NPS outshines MFs, benchmark indices in 2016 - The Economic Times". The Economic Times. Retrieved 17 January 2017.
  20. ^ "How to change the scheme preference in NPS". The Economic Times. 17 September 2017. Retrieved 17 September 2017.
  21. ^ Zaidi, Babar (30 January 2017). "Income Tax saving: Choose the best tax saving instrument for you". The Economic Times.
  22. ^ Dhawan, Sunil (17 September 2017). "Looking at NPS for tax saving? Find out if the investment suits your financial profile". Retrieved 17 September 2017 – via The Economic Times.
  23. ^ "Union Budget 2017: More tax relief for NPS subscribers - Times of India". Retrieved 17 September 2017.
  24. ^ Dhawan, Sunil (1 February 2017). "Budget 2017 proposes tax exemption to premature partial withdrawal from NPS". The Economic Times. Retrieved 17 September 2017.
  25. ^ "Union Budget 2017 provides new benefits to NPS subscribers". 1 February 2017. Retrieved 17 September 2017.
  26. ^ Saleem, Shaikh Zoaib (2 February 2017). "NPS gets tax breaks, parity for subscribers". Retrieved 17 September 2017.
  27. ^ SMARTADVISOR4U. "Subject: Increase of Entry Age up to 70 Years under NPS" (PDF). PFRDA. Retrieved 26 August 2021.((cite web)): CS1 maint: url-status (link)
  28. ^ Bhaskaran, Deepti (31 May 2018). "You can continue investing in NPS even after retirement". mint.
  29. ^ Saleem, Deepti Bhaskaran & Shaikh Zoaib (27 December 2016). "Pension gets a stronger equity push". Retrieved 17 January 2017.
  30. ^ "How to select best NPS funds - Times of India". Retrieved 17 September 2017.
  31. ^ "SBI Pension Funds eyes Rs 65,000 crore AUM by end of fiscal". Retrieved 17 January 2017.
  32. ^ "Budget ideas for the Finance Minister - Times of India". The Times of India. 26 December 2016. Retrieved 17 September 2017.
  33. ^ "PFRDA bars third party payments in Tier II accounts of NPS". The Economic Times. 17 September 2017. Retrieved 17 September 2017.
  34. ^ Singh, Sanjay Kumar (2 May 2016). "Two new NPS funds for different risk appetites". Business Standard India. Retrieved 17 January 2017 – via Business Standard.
  35. ^ Nathan, Narendra. "Good performance of NPS likely to continue in 2017 - The Economic Times". The Economic Times. Retrieved 17 January 2017.
  36. ^ Krishnan, Aarati (25 December 2016). "Retirement options: Check out the changes". Retrieved 17 January 2017.
  37. ^ "What is NPS? National Pension Scheme : FAQs". The Economic Times.
  38. ^ smartadvisor4u. "Subject: Increase of Entry Age up to 70 Years under NP" (PDF). PFRDA. Retrieved 26 August 2021.
  39. ^ "NPS assets under management rises 27% y-o-y to Rs 7.36 trillion". Financialexpress. Retrieved 15 June 2022.
  40. ^ "NPS: Frequently asked questions". The Economic Times. 2 June 2017. Retrieved 17 September 2017.
  41. ^ "Ask ET Mutual Funds: Suggest me some good ELSSs and NPS funds". The Economic Times. 17 May 2017. Retrieved 17 September 2017.
  42. ^ "Withdrawal".
  43. ^ "Gazette-PFRDA (Exits and Withdrawals under NPS) (Amendment) Regulations 2021" (PDF). 14 June 2021. Retrieved 14 June 2021 – via The Pension Fund Regulatory and Development Authority (PFRDA).
  44. ^ Mukerji, Chandralekha (17 September 2017). "Experts differ on how to claim additional NPS tax benefit under Sec 80CCD (1b). Clarity is also not there as to whether the benefit comes under tier-i or tier-ii". The Economic Times. Retrieved 17 September 2017.
  45. ^ "7 National Pension System myths busted to ensure your retirement planning does not get derailed". 6 September 2017.