The National Pension Scheme (NPS) is a government-backed, voluntary, defined-contribution pension system in India designed to provide financial security during retirement. Administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA), the NPS has emerged as a popular choice for individuals seeking to build a retirement corpus while availing significant tax benefits. As we move into 2025, the NPS continues to evolve, offering flexible investment options, market-linked returns, and enhanced features like the NPS Vatsalya scheme and the Unified Pension Scheme (UPS). This article provides a comprehensive overview of the NPS in 2025, covering its benefits, tax savings, online registration process, returns, and other essential details.
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What is the National Pension Scheme (NPS)?
Launched in January 2004 for government employees and extended to all Indian citizens in 2009, the NPS is a market-linked pension scheme aimed at ensuring financial stability post-retirement. Unlike traditional pension schemes that offer fixed returns, the NPS invests contributions in a mix of asset classes—equity, corporate bonds, government securities, and alternative investment funds—allowing subscribers to benefit from market-driven growth. The scheme is portable across jobs and locations and is accessible to both salaried and self-employed individuals, including Non-Resident Indians (NRIs).
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| National Pension Scheme |
The NPS operates on a unique Permanent Retirement Account Number (PRAN), a 12-digit identifier assigned to each subscriber, ensuring seamless management of contributions and investments. The scheme is structured around two primary accounts:
- Tier I Account: A mandatory pension account with tax benefits and restricted withdrawals.
- Tier II Account: A voluntary investment account with no tax benefits but flexible withdrawal options.
In 2025, the NPS remains a low-cost, tax-efficient, and flexible retirement planning tool, with new enhancements like the NPS Vatsalya scheme for minors and the option to migrate to the Unified Pension Scheme (UPS) for guaranteed returns.
National Pension Scheme (NPS) Highlights
| Scheme | National Pension Scheme (NPS) |
|---|---|
| Scheme Type | Market-linked, defined-contribution pension scheme. |
| Eligibility | Indian citizens and OCIs aged 18–70 years. Special provision: NPS Vatsalya for minors. |
| Minimum Contribution |
Tier I: ₹500/year (₹500 initial deposit) Tier II: ₹1,000 initial deposit, ₹250 per contribution. |
| Returns | Indicative returns of 9–12%; equity funds have delivered up to 18.6% (3-year average). |
| Investment Options |
Active Choice: Choose your allocation — Equity (up to 75%), Corporate Bonds, G-Secs, and Alternatives (up to 5%). Auto Choice: Lifecycle funds — LC-75, LC-50, LC-25. |
| NPS Vatsalya | For minors; minimum ₹500/year; converts to regular Tier I account at 18; same tax benefits apply. |
| Portability | Fully portable across jobs and locations using PRAN (Permanent Retirement Account Number). |
| Online Registration | Register via eNPS portal using Aadhaar-based e-Sign. KYC charges: ₹125 + taxes. |
Delhi Old Age Pension Scheme
Key Features of NPS in 2025
The NPS is designed to cater to diverse financial needs, offering a range of features that make it an attractive retirement planning option:
- Flexibility: Subscribers can choose their investment allocation across four asset classes—Equity (E), Corporate Bonds (C), Government Securities (G), and Alternative Investment Funds (A). They can also switch between fund managers and investment options to optimize returns.
- Low Cost: The NPS is one of the most cost-effective pension schemes globally, with fund management charges ranging from 0.03% to 0.09% annually.
- Portability: The PRAN ensures continuity of the account across job changes or relocations, making it ideal for professionals with dynamic careers.
- Voluntary Participation: Open to Indian citizens (resident or non-resident) and Overseas Citizens of India (OCI) aged 18–70 years, the NPS allows contributions based on financial goals and risk appetite.
- Regulated Framework: Managed by the PFRDA and monitored by the NPS Trust, the scheme ensures transparency and accountability.
- Tax Efficiency: Offers deductions under Sections 80C, 80CCD(1B), and 80CCD(2) of the Income Tax Act, 1961, with tax-free lump-sum withdrawals up to 60% at retirement.
Benefits of the National Pension Scheme
The NPS offers a multitude of benefits, making it a preferred choice for retirement planning in 2025:
Retirement Corpus Creation
The NPS leverages the power of compounding to build a substantial retirement corpus. Regular contributions, even small amounts, grow significantly over time due to market-linked returns. For instance, contributing ₹10,000 monthly for 25 years at an indicative return of 9–12% can yield a corpus of approximately ₹1.07 crore, with 60% (₹64.24 lakh) available as a tax-free lump sum and the remaining 40% (₹42.83 lakh) used for annuity purchase, generating a monthly pension of around ₹21,413 (assuming a 6% annuity rate)
Market-Linked Returns
Unlike fixed-income schemes like the Public Provident Fund (PPF), which offers 7–8% returns, the NPS provides market-linked returns ranging from 9–12% annually, depending on the chosen asset allocation. Over the past few years, top-performing NPS equity funds have delivered returns as high as 18.6% over three years, with DSP Pension Fund leading at 21.45%
Flexibility in Investment Choices
Subscribers can opt for:
- Active Choice: Allocate funds across Equity (up to 75%), Corporate Bonds (up to 100%), Government Securitites (up to 100%), and Alternative Assets (up to 5%).
- Auto Choice: Lifecycle funds (Aggressive LC-75, Moderate LC-50, Conservative LC-25) automatically adjust equity exposure based on age, reducing risk as retirement approaches.
Tax Savings
The NPS offers triple tax benefits under the old tax regime:
- Section 80CCD(1): Deduction up to ₹1.5 lakh for individual contributions (10% of basic salary + DA for salaried individuals or 20% of gross income for self-employed).
- Section 80CCD(1B): Additional deduction of up to ₹50,000 for Tier I contributions, exclusive to NPS subscribers.
- Section 80CCD(2): Employer contributions up to 10% of basic salary + DA (14% for government employees in the new tax regime) are deductible, subject to a cumulative limit of ₹7.5 lakh with other schemes like EPF and superannuation funds.
Additionally, up to 60% of the corpus withdrawn at retirement is tax-free, and partial withdrawals (up to 25% of self-contributed amounts) for specific purposes like education or medical emergencies are also exempt.
Portability and Continuity
The NPS is portable across jobs, sectors, and locations. The PRAN remains unchanged, allowing seamless contributions and management, even for NRIs or those relocating abroad.
Low-Risk Option for Conservative Investors
For those with a low-risk appetite, the NPS offers conservative investment options like Government Securities (G) and lifecycle funds, balancing safety and growth.
NPS Vatsalya Scheme
Introduced in the 2024 budget, the NPS Vatsalya scheme allows parents or guardians to open NPS accounts for minors, fostering early financial planning. Contributions start at ₹500 annually, and the account converts to a regular NPS Tier I account when the child turns 18. Tax benefits under Sections 80CCD(1) and 80CCD(1B) apply, making it a unique tool for securing a child’s financial future.
Unified Pension Scheme (UPS) Option
From April 1, 2025, central government employees and retired NPS subscribers can opt for the UPS, which guarantees a minimum pension of ₹10,000 per month, unlike the market-linked NPS. Existing NPS subscribers can migrate to the UPS while retaining tax benefits.
Tax Savings under NPS in 2025
The NPS is one of the most tax-efficient retirement schemes, offering deductions under multiple sections of the Income Tax Act, 1961, primarily under the old tax regime:
Section 80CCD(1): Individual Contributions
- Eligibility: Salaried and self-employed individuals.
- Limit: Up to 10% of basic salary + DA for salaried individuals or 20% of gross annual income for self-employed, capped at ₹1.5 lakh (combined with Sections 80C and 80CCC).
- Example: A salaried individual with a basic salary of ₹10 lakh can claim a deduction of ₹1 lakh (10% of basic salary) if contributed to NPS Tier I.
Section 80CCD(1B): Additional Deduction
- Eligibility: Exclusive to NPS Tier I contributions.
- Limit: Up to ₹50,000 over and above the ₹1.5 lakh limit under Section 80C.
- Example: An individual contributing ₹50,000 to NPS Tier I can claim an additional ₹50,000 deduction, reducing taxable income by ₹2 lakh in total.
Section 80CCD(2): Employer Contributions
- Eligibility: Salaried individuals whose employers contribute to NPS.
- Limit: Up to 10% of basic salary + DA (14% for government employees in the new tax regime), subject to a ₹7.5 lakh cumulative limit with EPF and superannuation contributions.
- Example: An employer contributing ₹1 lakh (10% of basic salary + DA) to an employee’s NPS account reduces the employee’s taxable income by ₹1 lakh.
Tax Benefits on Withdrawals
- Lump-Sum Withdrawal: Up to 60% of the corpus at retirement (age 60) is tax-free under Section 10(12A).
- Partial Withdrawals: Up to 25% of self-contributed amounts can be withdrawn for specific purposes (e.g., education, medical emergencies) after a 3-year lock-in, tax-exempt under Section 10(12B).
- Annuity Purchase: The amount used to purchase an annuity (minimum 40% of the corpus) is tax-free at the time of investment, though annuity income is taxable as per the applicable slab.
Tax Benefits for NPS Vatsalya
Parents contributing to an NPS Vatsalya account for their minor children can claim deductions under Sections 80CCD(1) (up to ₹1.5 lakh) and 80CCD(1B) (up to ₹50,000), similar to regular NPS accounts.
Tax Benefits under UPS
The tax benefits available to NPS subscribers have been extended to the Unified Pension Scheme (UPS), ensuring continuity for those who opt to migrate.
Corporate Sector Benefits
Corporate employees can route contributions through their employer to claim deductions under Section 80CCD(2). Employers can also deduct contributions up to 10% of salary as a business expense.
Online Registration for NPS in 2025
Opening an NPS account is a straightforward process, made seamless through the eNPS portal (enps.nps-proteantech.in). Here’s a step-by-step guide to online registration:
Eligibility
- Indian citizens (resident or non-resident) or OCIs aged 18–70 years.
- Compliance with Know Your Customer (KYC) norms.
- Minors can enroll through the NPS Vatsalya scheme (age below 18).
Steps to Register Online
- Visit the eNPS Portal: Go to enps.nps-proteantech.in.
- Select Subscriber Type: Choose “NPS All Citizen Model” for individuals, “NPS Corporate Model” for corporate employees, or “NPS Vatsalya” for minors.
- Enter Details: Provide personal details (name, date of birth, PAN, Aadhaar, mobile number, email).
- Upload Documents: Submit a recent photograph, PAN card, proof of address, and bank account details (canceled cheque). For NPS Vatsalya, include the child’s birth certificate and guardian’s KYC documents.
Choose Investment Mode:
- Active Choice: Allocate funds across Equity (E), Corporate Bonds (C), Government Securities (G), and Alternative Assets (A).
- Auto Choice: Select a lifecycle fund (LC-75, LC-50, or LC-25).
Make Initial Contribution:
- Tier I: Minimum ₹500 at registration, ₹1,000 annually (minimum ₹500 per contribution).
- Tier II: Minimum ₹1,000 at registration, ₹250 per contribution, with a yearly balance of ₹2,000.
e-Sign the Form: Use Aadhaar-based e-Sign (₹5.90 charge) by entering Aadhaar/Virtual ID and verifying with OTP.
Receive PRAN: Upon successful registration, a PRAN is issued, along with login credentials for managing the account.
Additional Notes
- Payment Modes: Contributions can be made via net banking, debit card, or UPI. Credit card payments are not permitted for Tier II accounts.
- KYC Verification: Costs ₹125 + taxes for eNPS applications.
- NPS Vatsalya: Guardians must provide the child’s Aadhaar, birth certificate, and their own KYC documents. The minimum annual contribution is ₹500.
Returns under NPS in 2025
The NPS is a market-linked scheme, and returns depend on the performance of the chosen asset classes and pension fund managers. As of 2025, indicative returns range from 9–12% annually, with equity funds delivering higher returns over longer periods.
Historical Performance
- Equity Funds (E): Top-performing equity funds have delivered 18.6% returns over three years, with DSP Pension Fund at 21.45% and Kotak at 10.56% [Web ID: 19].
- Corporate Bonds (C) and Government Securities (G): These offer stable returns, typically between 7–10%, suitable for conservative investors.
- Alternative Assets (A): Limited to 5% allocation, these include instruments like REITs and AIFs, offering moderate returns with higher risk.
Recent Trends
In H1 2025, NPS equity funds delivered single-digit returns, with DSP Pension Fund leading at 7.28%. Assets Under Management (AUM) ranged from ₹1,234 crore to ₹21,675 crore, with HDFC managing the highest AUM.
NPS Calculator
The NPS Calculator is a useful tool to estimate returns. For example:
- Inputs: Monthly contribution of ₹10,000, age 30, expected return of 10%, annuity rate of 6%, and 30 years until retirement.
- Output: Corpus of ₹1.07 crore, with ₹64.24 lakh as a tax-free lump sum and ₹21,413 as a monthly pension.
Key Points on Returns
- Returns are not fixed and vary based on market performance.
- Long-term investments benefit from compounding, making early investment crucial.
- Lifecycle funds automatically reduce equity exposure as the subscriber ages, balancing risk and return.
Withdrawal Rules and Exit Options
The NPS has specific rules for withdrawals and exits:
At Retirement (Age 60):
- Up to 60% of the corpus can be withdrawn tax-free as a lump sum.
- At least 40% must be used to purchase an annuity for a regular pension, which is taxable as per the subscriber’s income tax slab.
- If the corpus is ≤₹5 lakh, 100% can be withdrawn as a lump sum.
Before Retirement:
- Partial withdrawals up to 25% of self-contributed amounts are allowed after a 3-year lock-in for specific purposes (e.g., education, medical emergencies), limited to three times during the tenure.
- Early exit (before age 60) allows 20% as a tax-free lump sum, with 80% used for annuity purchase.
- On Death: The entire corpus is paid to the nominee or legal heir, tax-free.
NPS Vatsalya Scheme: A Game-Changer for Minors
The NPS Vatsalya scheme, introduced in 2024, allows parents or guardians to open NPS accounts for children below 18 years. Key features include:
- Eligibility: Indian minors with a guardian (parent or legal guardian).
- Minimum Contribution: ₹500 annually.
- Tax Benefits: Same as regular NPS (₹1.5 lakh under Section 80CCD(1) and ₹50,000 under Section 80CCD(1B)).
- Conversion: The account converts to a regular NPS Tier I account at age 18.
- Withdrawal: Locked until age 18, except for emergencies like serious illness (subject to approval).
- This scheme promotes financial literacy and early savings, ensuring a robust retirement corpus for the next generation.
Unified Pension Scheme (UPS) in 2025
The UPS, effective from April 1, 2025, offers a guaranteed minimum pension of ₹10,000 per month for central government employees and retired NPS subscribers who opt to migrate. Unlike the market-linked NPS, the UPS adjusts returns for inflation, providing stability. Tax benefits under Sections 80CCD(1), 80CCD(1B), and 80CCD(2) are extended to UPS subscribers.
Comparison of the NPS and UPS
| Feature | National Pension Scheme (NPS) | Unified Pension Scheme (UPS) |
|---|---|---|
| Launch Year | 2004 (extended to all citizens in 2009) | Effective from April 1, 2025 |
| Nature of Scheme | Market-linked, defined-contribution pension scheme | Defined-benefit scheme with guaranteed returns |
| Eligibility | Indian citizens and OCIs aged 18–70 years (NPS Vatsalya for minors) | Central government employees and NPS subscribers opting to migrate |
| Returns | Market-linked returns, typically 9–12% annually (varies by asset allocation) | Guaranteed minimum pension of ₹10,000/month, inflation-adjusted |
| Contribution | Voluntary: Minimum ₹500/year (Tier I) and ₹1,000 initial deposit (Tier II) | Fixed contributions — Employee: 10%, Government: 18.5% |
| Tax Benefits |
- Section 80CCD(1): Up to ₹1.5 lakh - Section 80CCD(1B): Additional ₹50,000 - Section 80CCD(2): Employer contribution 10–14% (capped at ₹7.5 lakh) |
Same tax benefits as NPS for migrated subscribers |
| Withdrawal at Retirement |
- 60% tax-free lump sum - 40% must be used to buy annuity (taxable) - 100% withdrawal allowed if corpus ≤ ₹5 lakh |
Assured lifelong pension; no lump-sum withdrawal |
| Flexibility | Freedom to choose asset allocation (Equity, Bonds, G-Secs) and fund managers | No investment choice; fixed pension structure |
| Risk | Subject to market risk, depends on chosen investment options | Low risk due to guaranteed pension |
| Portability | Fully portable across jobs and locations via PRAN | Currently limited to central government employees; portability details awaited |
| Suitability | Best for investors seeking market-linked growth and flexibility | Best for those who prefer a guaranteed pension and financial stability |
How NPS Compares to Other Schemes
NPS vs. PPF
- Returns: NPS offers 9–12% market-linked returns, while PPF provides 7–8% fixed returns.
- Tax Benefits: NPS offers an additional ₹50,000 deduction under Section 80CCD(1B), unlike PPF.
- Lock-In: NPS has a longer lock-in until age 60, while PPF has a 15-year lock-in.
NPS vs. Atal Pension Yojana (APY)
- Eligibility: NPS is open to ages 18–70, while APY is restricted to 18–40.
- Returns: NPS is market-linked, while APY offers fixed pension slabs (₹1,000–₹5,000).
- Flexibility: NPS allows investment choice and partial withdrawals, while APY is rigid.
Why Choose NPS in 2025?
The NPS stands out as a versatile, tax-efficient, and market-linked retirement planning tool. Its low cost, flexibility, and triple tax benefits make it ideal for salaried and self-employed individuals. The introduction of NPS Vatsalya and the UPS option further enhances its appeal, catering to both young savers and those seeking guaranteed returns. By starting early and leveraging the power of compounding, subscribers can build a significant retirement corpus while reducing their tax liability.
Conclusion
The National Pension Scheme in 2025 is a robust and dynamic retirement planning option, offering a blend of market-linked growth, tax savings, and flexibility. With features like the NPS Vatsalya scheme for minors and the Unified Pension Scheme for guaranteed returns, the NPS caters to a wide range of investors. Its online registration process, low costs, and portability make it accessible and convenient, while its tax benefits under Sections 80CCD(1), 80CCD(1B), and 80CCD(2) ensure significant savings. By understanding the scheme’s features, returns, and withdrawal rules, individuals can make informed decisions to secure their financial future. Start your NPS journey today through the eNPS portal or trusted platforms like HDFC Pension, ICICI Bank, or SBI, and take a step toward a financially secure retirement.
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FAQs National Pension Scheme (NPS)
Q. What is the National Pension Scheme (NPS)?
The NPS is a government-backed, voluntary pension scheme in India, launched in 2004 and extended to all citizens in 2009. It allows subscribers to build a retirement corpus through market-linked investments in equity, bonds, and government securities, managed by the PFRDA. It offers tax benefits and flexibility for salaried and self-employed individuals.
Q. Who is eligible to join NPS?
Indian citizens and OCIs aged 18–70, including salaried, self-employed, and NRIs, can join NPS. The NPS Vatsalya scheme extends eligibility to minors through guardians, with accounts converting to regular NPS Tier I accounts at age 18.
Q. What are the tax benefits of NPS?
NPS offers deductions under Section 80CCD(1) (₹1.5 lakh), Section 80CCD(1B) (₹50,000), and Section 80CCD(2) (10–14% of salary, up to ₹7.5 lakh for employer contributions). Up to 60% of the corpus is tax-free at retirement, and partial withdrawals (25%) for specific needs are also exempt.
Q. What are the minimum contribution requirements?
For Tier I, the minimum annual contribution is ₹1,000 (₹500 initial), with a minimum of ₹500 per contribution. For Tier II, the initial contribution is ₹1,000, with ₹250 per subsequent contribution and a yearly balance of ₹2,000. NPS Vatsalya requires ₹500 annually.
Q. What returns can I expect from NPS?
NPS returns are market-linked, typically ranging from 9–12% annually. Equity funds have delivered up to 18.6% over three years, while bonds and government securities offer 7–10%. Returns depend on asset allocation and fund manager performance.
Q. What are the investment options in NPS?
Subscribers can choose Active Choice (allocate up to 75% in equity, 100% in bonds or G-Secs, 5% in alternatives) or Auto Choice (lifecycle funds: LC-75, LC-50, LC-25), which adjusts equity exposure based on age to balance risk.
Q. Can I withdraw money from NPS before retirement?
Yes, partial withdrawals up to 25% of self-contributed amounts are allowed after a 3-year lock-in for specific purposes (e.g., education, medical emergencies), up to three times. At retirement (age 60), 60% of the corpus is tax-free, with 40% used for annuity purchase.
Q. What is NPS Vatsalya?
NPS Vatsalya, introduced in 2024, allows parents/guardians to open NPS accounts for minors with a minimum annual contribution of ₹500. It offers the same tax benefits as NPS and converts to a Tier I account when the child turns 18.
Q. How can I register for NPS?
You can register online via the eNPS portal (enps.nps-proteantech.in) using Aadhaar or PAN for KYC. Provide personal details, upload documents, choose a pension fund manager, and make an initial contribution. The process costs ₹125 + taxes for KYC verification.