How NPS works
You contribute regularly to a pension account invested in a mix of equity, corporate bonds and government bonds. At exit you take part of the corpus as a lump sum and use the rest to buy an annuity, which pays a monthly pension for life.
New exit rules (December 2025)
- Non-government subscribers can take up to 80% as a lump sum; at least 20% must buy an annuity. Earlier it was 60/40.
- A corpus of up to ₹8 lakh can be withdrawn in full.
- Normal exit is at 60 or after 15 years in NPS; you can stay invested up to 85.
- Government employees still have the 60% lump-sum limit.
Check the PFRDA circular for your account type before you exit, and confirm with your pension fund how the extra lump sum is taxed.
Tax benefits
- Your own contribution: up to ₹50,000 extra deduction (80CCD(1B)) in the old regime, over and above ₹1.5 lakh of 80C.
- Employer’s contribution: up to 14% of basic is deductible in the new regime (10% in the old).
- 60% of the corpus taken as a lump sum is tax-free; annuity income is taxed at your slab.
Example
₹5,000 a month from age 30 to 60 at 10% builds about ₹1,13,96,627. With 20% in an annuity at 6%, that is a pension of about ₹11,397 a month, and a lump sum of ₹91.17 lakh.
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Questions people ask
What return does NPS give?
It depends on your equity share and fund manager. Over 10+ years, equity (Scheme E) funds have returned roughly 10–13% a year and government bond funds 8–9%; past returns are not a promise.
Can I withdraw NPS before 60?
Partial withdrawals of up to 25% of your own contributions are allowed for reasons like education, marriage, a house or illness. Exiting fully before 60 usually means 80% must buy an annuity, unless the corpus is ₹5 lakh or less.