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India 2026

National Pension System (NPS) Tier 1 is India's voluntary, government-backed retirement scheme regulated by PFRDA. You contribute monthly until age 60.

At exit (age 60), under PFRDA's December 2025 rules, non-government subscribers can take up to 80% of the corpus as a lump sum and must annuitise at least 20% (government employees: up to 60% / at least 40%). With a corpus of ₹8 lakh or less you can take it all as a lump sum.

Up to 60% of the corpus is tax-free. NPS Tier 1 has lock-in until age 60 — you cannot withdraw freely.

Tier 2 is a voluntary, no-tax-benefit account with no lock-in.

NPS returns depend on asset allocation. Equity (E) component has historically delivered 11-13% CAGR over long periods; corporate debt (C) gives 9-10%; government bonds (G) give 7-8%.

A typical 'aggressive' allocation (75% E + 25% C/G) has averaged 10-11% CAGR over the past decade. PFRDA's Active Choice lets you control the mix; Auto Choice glide-paths from equity-heavy in your 30s to debt-heavy near retirement.

NPS, PPF, and ELSS each have a place in a diversified retirement plan: PPF (7.1% guaranteed, EEE, 15y lock-in) for risk-free 80C; ELSS (12-15% historical, 3y lock-in, LTCG at 12.5% above ₹1.25L of gains per FY) for liquidity and equity exposure; NPS (9-12% expected, until age 60; at exit up to 80% lump sum, 60% of the corpus tax-free, at least 20% annuity for non-government subscribers) for the extra ₹50k 80CCD(1B) deduction. Most financial planners recommend ALL THREE: max your 80C with PPF + ELSS, then add NPS for the bonus deduction.

Since PFRDA's Exits and Withdrawals (Amendment) Regulations, 2025 (notified 12 December 2025), at least 20% for non-government subscribers (private-sector, corporate and All Citizen accounts) and at least 40% for government employees, when the corpus is above ₹12 lakh. Between ₹8 lakh and ₹12 lakh you may take up to ₹6 lakh as a lump sum and draw the rest over at least six years instead; at ₹8 lakh or less no annuity is required.

The rule used to be 40% for everyone. The annuity exists to make NPS provide lifetime pension income.

The annuity creates a monthly pension stream you cannot outlive, protecting against longevity risk. The trade-off: annuity rates in India are currently 6-7%, which is lower than what equity could earn.

Some retirees view this as suboptimal; others value the predictable pension. You can choose your annuity provider (LIC, HDFC Life, ICICI Prudential, etc.) at maturity and pick options like joint life with spouse, increasing pension, etc. If you are a salaried EPFO member you already have a second lifetime pension that needs no annuity purchase: EPS, which pays average wages × service ÷ 70, with service from 17 September 2026 counted at the new ₹25,000 ceiling.

Work it out with the EPS pension calculator at /in/tools/eps-pension-calculator.

Partial withdrawal up to 25% of own contributions is allowed after 3 years for specified purposes: home purchase, children's education or marriage, medical treatment, starting a business. Since December 2025 you can make up to four partial withdrawals before 60, at least four years apart.

Premature exit (full closure before 60) is allowed, but at least 80% must go to annuity and only 20% can be taken as a lump sum, unless the corpus is ₹5 lakh or less, which can be withdrawn in full. That is much worse than the 80/20 split available at 60.

Better to wait if possible.

Section 80CCD(1B) provides an ADDITIONAL ₹50,000 deduction on NPS Tier 1 contributions, OVER AND ABOVE the ₹1.5 lakh Section 80C cap. So you can claim up to ₹2 lakh total on NPS: ₹1.5 lakh under 80C + ₹50,000 under 80CCD(1B).

For a 30% bracket taxpayer, the extra ₹50k deduction saves ₹15,600 in taxes per year (₹50,000 × 31.2% with cess). Over a 30-year career, that's ₹4.7 lakh in tax savings just from the bonus deduction alone.