NPS Tax Benefits: Rules & Eligibility For Salaried And Self-Employed Individuals; Withdrawal & Exemptions Explained

The National Pension Scheme (NPS) is a government-backed social security initiative open to employees in public, private, and unorganised sectors, except the armed forces. It provides a structured way to save for retirement with regulated investment options and long-term financial security. 

NPS is a suitable option for individuals planning early retirement with a low-risk appetite. It also benefits salaried employees seeking tax deductions under Section 80C, making it an attractive choice for disciplined, long-term financial planning.  

Since its inception over a decade ago, NPS has consistently delivered annualised returns ranging between 9 per cent and 12 per cent. Subscribers also have the flexibility to switch their fund manager if they are unsatisfied with the fund’s performance, ensuring better control over their investments. 

The equity exposure in NPS is capped between 50 per cent and 75 per cent, helping balance risk and returns. For government employees, the cap is fixed at 50 per cent, while for investors aged 60 and above, the maximum equity allocation is also restricted to 50 per cent to maintain stability. 

NPS offers flexibility in contributions, allowing subscribers to invest at any time during the financial year. They can also adjust the frequency and amount of contributions as per their financial situation and investment goals, making it a convenient option for long-term wealth accumulation. 

Salaried employees benefit from tax deductions under Section 80CCD(2), with employer contributions up to 10 per cent of salary (basic plus DA) being tax-exempt. From April 2025, the deduction limit for Central Government employees will increase to 14 per cent, exceeding the Rs 1.5 lakh limit under Section 80CCE. 

Self-employed individuals can avail of tax benefits with deductions up to 20 per cent of their gross income under Section 80CCD(1), subject to a Rs 1.5 lakh limit under Section 80CCE. Adding further, they can claim an extra Rs 50,000 deduction under Section 80CCD(1B), further reducing their taxable income. 

NPS withdrawals come with tax exemptions, allowing partial withdrawals of up to 25 per cent of self-contributions under Section 10(12B). Upon retirement or superannuation, a lump sum withdrawal of 60 per cent of the accumulated corpus is also tax-free, ensuring financial ease during post-retirement years. 

The National Pension System (NPS) is open to Indian citizens, both residents and non-residents, as well as NRIs aged between 18 and 70 years. Applicants must meet KYC requirements and be legally competent under the Indian Contract Act. However, OCIs, PIOs, and HUFs are ineligible. NPS accounts are strictly individual and cannot be opened for third parties. (Image Credit: File Photo)