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NPS Full Form?
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The NPS full form is the National Pension System, though it is commonly known as the National Pension Scheme.
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What is NPS (National Pension Scheme)?
By Bajaj Broking Team
March 27, 2025
15 mins read
Personal Finance
The National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme introduced by the Government of India to provide financial security during retirement. Initially launched for government employees in 2004, it was extended to all Indian citizens, including those in the unorganised sector, in 2009. The NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and offers individuals the opportunity to systematically save for their retirement years.
The National Pension Scheme aims to provide financial security and stability during old age when people have limited income-earning capabilities. As a defined contribution pension system, the National Pension System allows subscribers to contribute regularly during their working years to build a retirement corpus that can provide a steady income after retirement.
Objectives of the National Pension System
The NPS full form stands for the National Pension System, although it is popularly known as the National Pension Scheme. The chief objectives of the NPS Scheme are listed below:
- Promote retirement savings: Encourage individuals to build a retirement corpus with the help of regular contributions.
- Provide pension income: Ensure a steady income stream for individuals during their retirement years.
- Financial independence: Reduce dependency on family or state support by fostering financial self-reliance among retirees.
- Expand pension coverage: Extend pension benefits to workers in the unorganised sector and self-employed individuals.
How does NPS work?
The NPS operates on a defined contribution basis, where individuals contribute regularly to their NPS accounts during their working years. These contributions are invested in a mix of asset classes, including equities, corporate bonds, government securities, ETFs, and alternative investments, managed by professional pension fund managers. Upon reaching the age of 60, subscribers can withdraw up to 60% of the total corpus as a lump sum, which is tax-free. The remaining 40% is utilised to purchase an annuity, providing a regular pension income during retirement. Apart from investing in mutual funds directly, investors can consider NPS to build a robust retirement corpus.
Features and benefits of NPS
As an investor, you must understand the following features and benefits of NPS before opting for this investment avenue:
- Voluntary participation: Open to all Indian citizens aged 18 to 70 years, allowing flexibility in joining and contributing.
- Flexible contributions: Subscribers can decide their contribution amount and frequency, with a minimum annual contribution of ₹1,000 for Tier I accounts.
- Diversified investment options: Subscribers can choose between auto and active investment options, allowing flexibility in fund allocation. The auto option adjusts investments based on age, while the active option lets investors decide asset allocation, making it ideal for those familiar with stock market basics.
- Market-linked returns: Investments are subject to market performance, potentially offering higher returns compared to traditional fixed-income instruments.
- Portability: NPS accounts are portable across jobs and locations, ensuring continuity in retirement planning.
- Regulated framework: Governed by the PFRDA, ensuring transparency, reliability, and protection of subscriber interests.
- Low-cost structure: The National Pension Scheme has one of the lowest fund management charges in the financial industry.
- Tax Benefits: Contributions to NPS enjoy tax benefits under various sections of the Income Tax Act. Furthermore, NPS falls under the EEE (Exempt-Exempt-Exempt) category, meaning investments (up to the specified threshold), returns, and withdrawals (up to 60% of the corpus) are tax-free.
- Partial Withdrawals: The National Pension System allows partial withdrawals before retirement for specific purposes such as higher education, medical emergencies, home purchase, or marriage, subject to eligibility and withdrawal limits set by PFRDA regulations.
Types of NPS accounts
NPS subscribers can open two types of accounts: Tier I and Tier II. However, a Tier II account can only be opened if a Tier I account already exists. The key differences between them lie in tax benefits and withdrawal rules. While Tier I offers tax advantages but has withdrawal restrictions, Tier II provides more flexibility in withdrawals but lacks the same tax benefits. Let’s review each NPS account in detail below:
- Tier-I Account: This is a non-withdrawable retirement account which can be withdrawn only upon meeting exit conditions. Features include:
- Mandatory account for all NPS subscribers
- Tax benefits on contributions
- Restricted withdrawals before retirement
- Minimum contribution requirements
- Tier-II Account: This is a voluntary savings facility available as an add-on to the Tier-I account. Features include:
- Optional account with no restrictions on withdrawals
- No tax benefits on contributions (except for government employees)
- Lower minimum contribution requirements
- No minimum balance requirements
- Higher liquidity compared to Tier-I
Eligibility criteria for NPS
To open an NPS account, investors must meet the following eligibility criteria:
- Age requirement: Individuals between 18 and 70 years of age are eligible to join the NPS.
- Citizenship: Both resident and non-resident Indians (NRIs) as well as OCIs can participate in the scheme.
- KYC compliance: Subscribers must comply with Know Your Customer (KYC) norms, providing necessary identification and address proof during registration.
- Employment Type: Available to salaried employees (government and private sector) and self-employed individuals. NPS is mandatory for central government employees (except armed forces) who joined on or after January 1, 2004.
Note: Hindu Undivided Families (HUFs) and Persons of Indian Origin (PIOs) are not eligible for the National Pension Scheme.
How to open an NPS account?
Now that you know what is NPS and what are the eligibility requirements for investors, you can easily open an NPS account. Opening a National Pension System (NPS) account is simple and can be done through both offline and online channels. While the offline method involves visiting a financial institution, the online process offers a seamless digital experience.
Offline process
For those who prefer a physical application, the following steps need to be completed at a Point of Presence (PoP) such as banks or financial institutions:
- Obtain the registration form and fill in the required details.
- Submit KYC documents, including identity and address proof.
- Make an initial contribution (minimum ₹500 for Tier I).
- Receive PRAN, a unique Permanent Retirement Account Number, upon successful registration.
Online process
The eNPS portal allows users to register digitally with a quick and hassle-free process:
- Visit the official NPS Trust website and access the online registration form.
- Complete KYC verification using Aadhaar, PAN, or bank details.
- Select fund preferences, including pension fund manager and investment options.
- Make the initial contribution through net banking or card payment.
- Receive PRAN instantly upon successful registration.
How to apply for an NPS account?
To apply for an NPS account, you have to first decide whether you want to apply online or offline. Once you have decided on an application mode, you can follow the below listed steps:
- For online application:
- Step 1: Visit the eNPS portal (https://enps.nsdl.com)
- Step 2: Select "Registration" and choose the type of registration (Aadhaar-based, PAN-based, or corporate)
- Step 3: Fill in the required personal details, contact information, and nomination details
- Step 4: Select your preferred Pension Fund Manager (PFM) and investment option
- Step 5: Make the initial contribution using net banking, credit/debit card, or UPI
- Step 6: Submit the application and receive a PRAN (Permanent Retirement Account Number)
- For offline application:
- Step 1: Visit a Point of Presence (PoP) such as a bank or post office
- Step 2: Collect and fill the NPS registration form (Form CSF-1)
- Step 3: Submit the form along with KYC documents (ID proof, address proof, age proof)
- Step 4: Make the initial contribution through cash, check, or DD
- Step 5: Receive an acknowledgment and PRAN kit later by post
How to log in to the NPS account?[1] [2]
Accessing your NPS account online allows you to monitor your investments, check balances, and manage personal details. Here's how you can log in:
- Visit the Official CRA Website
Open the NPS CRA website on your preferred web browser. This portal allows you to access and manage your National Pension System (NPS) account online. - Click on "Login" and Select "Subscriber"
On the homepage, click on the ‘Login’ button and choose the ‘Subscriber’ option from the dropdown menu to proceed with account access. - Enter Your PRAN
Provide your Permanent Retirement Account Number (PRAN) in the required field. This unique identification number is assigned to every NPS subscriber. - Provide Login Credentials
Enter your password and the captcha code displayed on the screen. Make sure your credentials are correct to avoid login issues. - Click on "Login"
Once your details are entered, click the ‘Login’ button to access your NPS account dashboard, where you can check your investments, contributions, and personal details. - First-Time Login Setup
If logging in for the first time, use the default password provided in your PRAN kit. You will be required to change it for security reasons. - Change Password
After logging in, you will be prompted to update your password to ensure account security. Choose a strong password that meets the security guidelines. - Set Security Questions
Select and answer security questions, which will help you recover your account in case you forget your password in the future.
Note: If you have forgotten your password, use the "Reset Password" option. You'll need to provide your PRAN, date of birth, and complete an OTP verification sent to your registered mobile number to set a new password.
How to check NPS balance?
Regularly checking your NPS balance is essential for effective retirement planning. Various methods are available:
- Through the NPS Website:
- Log in to your NPS account using your PRAN and password on the NSDL eNPS portal.
- Navigate to the "Transaction Statement" section and select "Holding Statement" to view your accumulated balance.
- Using the NPS Mobile App:
- Download and install the NPS mobile application from your device's app store.
- Log in with your PRAN and password to access your account details and view your balance.
- Via the UMANG App:
- Open the UMANG app and search for "NPS".
- Log in using your PRAN and password to check your account balance.
- Missed Call Service:
- Give a missed call to 9212993399 from your registered mobile number. You'll receive an SMS with your NPS balance details.
- Email Alerts:
- Ensure your email ID is registered with your NPS account.
- You'll receive periodic account statements and updates via email.
Returns and interest rate on NPS
The NPS offers market-linked returns, as contributions are invested across various asset classes. Here's an overview:
Asset Class | Description | Expected Returns (Annual) |
Equity (E) | Investments in equity markets | 10-12% |
Corporate Bonds (C) | Investments in corporate debt instruments | 7-9% |
Government Securities (G) | Investments in government bonds and securities | 6-8% |
Alternative Investment Funds (A) | Investments in alternative assets like real estate and infrastructure | Variable |
Note: The figures outlined above are estimates based on historic data. Actual returns may vary based on market conditions and the performance of the chosen pension fund manager.
Tax benefits of the National Pension Scheme
The National Pension Scheme offers significant tax advantages under various sections of the Income Tax Act. Under Section 80CCD(1), contributions up to 10% of salary (for employees) or 20% of gross income (for self-employed) can be claimed as a deduction, subject to the overall limit of ₹1.5 Lakh under Section 80C.
An additional deduction of up to ₹50,000 is available exclusively for NPS contributions under Section 80CCD(1B), over and above the Section 80C limit of ₹1.5 Lakhs.
For government employees, the employer's contribution up to 14% of salary is tax-exempt under Section 80CCD(2). For non-government employees, the employer's contribution up to 10% of salary is tax-exempt.
Upon withdrawal, 60% of the corpus withdrawn at retirement is tax-free. The remaining 40%, which must be used to purchase an annuity, is taxed when the annuity is received.
National Pension Scheme withdrawal rules after retirement (60 Years)
Upon reaching the age of superannuation or 60 years, subscribers of the National Pension System can exit from the scheme according to certain set rules. Subscribers must utilise at least 40% of their accumulated pension corpus to purchase an annuity from an PFRDA-approved Annuity Service Provider (ASP). This annuity provides a regular pension to the subscriber.
Subscribers can withdraw the remaining 60% of the corpus accumulated in the NPS account as a lump-sum amount. This corpus is entirely tax-free. Moreover, if the total corpus value happens to be ₹5 lakh or less, the subscriber can withdraw the entire amount without purchasing an annuity.
Subscribers also have the option to continue their NPS account beyond 60 years, up to the age of 70, by deferring the withdrawal. This extended period allows for continued contributions and potentially higher returns.
Withdrawal and exit rules in NPS
The withdrawal and exit rules in NPS are outlined in detail below:
- Premature Exit (Before 60 Years):
- Annuity Purchase: At least 80% of the corpus that’s accumulated has to be used to buy an annuity, ensuring a pension income at regular intervals.
- Lump Sum Withdrawal: The remaining 20% can be withdrawn as a lump sum.
- Full Withdrawal Threshold: If the total corpus is ₹2.5 lakh or less, the subscriber can withdraw 100% as a lump sum without purchasing an annuity.
- Partial Withdrawals:
- Eligibility: Allowed after 3 years of NPS subscription.
- Withdrawal Limit: Up to 25% of the subscriber's own contributions (excluding employer contributions) can be withdrawn.
- Frequency: A maximum of three partial withdrawals are permitted during the entire tenure of the NPS account.
- Permissible Reasons: Withdrawals are allowed for specific purposes, including:
- Higher education of children (including legally adopted children).
- Marriage of children (including legally adopted children).
- Purchase or construction of a residential house or flat (in the subscriber's name or jointly with a legally wedded spouse).
- Treatment of specified illnesses for self, spouse, children, or dependent parents.
- Expenses related to skill development, re-skilling, or other self-development activities as permitted by the Pension Fund Regulatory and Development Authority (PFRDA).
- Establishment of a new venture or startup, as per PFRDA guidelines.
- Exit Due to Death:
- Corpus Distribution: In the unfortunate event of the subscriber's death, the entire NPS corpus is paid to the nominee or legal heir.
- Annuity Option: The nominee has the option to withdraw the entire corpus as a lump sum or to purchase an annuity for regular income.
- Voluntary Retirement:
- Treatment: Voluntary retirement is treated similarly to premature exit.
- Documentation: Subscribers must provide appropriate documentation to validate voluntary retirement.
Comparing NPS with other investment options
When planning for retirement, it's essential to evaluate how the National Pension System (NPS) stacks up against other investment avenues. Here's a comparative analysis:[3]
Aspect | NPS | Public Provident Fund (PPF) | Equity-Linked Savings Scheme (ELSS) | Fixed Deposits (FDs) |
Objective | Primarily designed to provide a regular pension income post-retirement. | Long-term savings scheme with a fixed interest rate, primarily for wealth accumulation. | Mutual funds that invest predominantly in equities, offering tax benefits under Section 80C. | Fixed-income instrument offering guaranteed returns over a specified period. |
Returns | Market-linked returns based on asset allocation; historically ranging between 8% to 10%. | Offers a fixed interest rate, revised quarterly by the government; currently around 7.1%. | Returns are market-linked and can vary; historically, ELSS funds have provided returns between 12% to 15% over the long term. | Fixed returns, varying between 5% to 7% depending on the bank and tenure. |
Risk Profile | Moderate to high, depending on equity exposure. | Low risk due to government backing. | High risk due to equity exposure. | Low risk, especially when invested in government or reputable bank FDs. |
Liquidity | Limited liquidity; partial withdrawals allowed under specific conditions before the age of 60. | Lock-in period of 15 years, with partial withdrawals permissible after 7 years. | Lock-in period of 3 years, post which funds can be redeemed. | Flexible tenures ranging from 7 days to 10 years; premature withdrawals may attract penalties. |
Tax Benefits | Contributions up to ₹1.5 lakh under Section 80C; additional ₹50,000 under Section 80CCD(1B); maturity corpus is partially taxable. | Contributions up to ₹1.5 lakh under Section 80C; interest earned is tax-free. | Investments up to ₹1.5 lakh under Section 80C; returns are taxable as per applicable slabs. | Investments up to ₹1.5 lakh under Section 80C (only for tax-saving FDs); interest earned is taxable. |
Post-Retirement Income | Mandatory to annuitize at least 40% of the corpus to ensure a regular pension. | No provision for regular pension; lump-sum maturity amount. | No provision for regular pension; lump-sum maturity amount. | No provision for regular pension; lump-sum maturity amount. |
Comparing NPS with ELSS
Both NPS and Equity-Linked Savings Schemes (ELSS) are popular for tax-saving and investment purposes. Here's a direct comparison:[4]
Aspect | NPS | ELSS |
Lock-in Period | Contributions are locked-in until the age of 60, with limited premature withdrawal options. | Lock-in period of 3 years, after which investments can be redeemed. |
Equity Exposure | Equity allocation can be up to 75%, depending on the subscriber's choice. | Invests predominantly in equities, with 80% to 100% exposure. |
Tax Treatment on Maturity | 60% of the corpus can be withdrawn lump-sum; 40% must be used to purchase an annuity, which is taxable as per income slab. | Returns of up to ₹1.25 Lakhs are tax-free. However, gains above this sum attract a Long-Term Capital Gains tax of 12.5%. |
Investment Flexibility | Offers limited flexibility; primarily focused on retirement, with restrictions on withdrawals before 60. | High flexibility; after the 3-year lock-in period, investors can redeem or continue as per their financial goals. |
NPS Calculator: Estimating your retirement corpus
The NPS scheme provides an online calculator tool to help subscribers estimate their potential retirement corpus. By inputting variables such as current age, retirement age, monthly contribution, expected annual increase in contribution, and expected rate of return, subscribers can get an estimate of their retirement corpus.
For example, a 30-year-old individual contributing Rs. 5,000 monthly with an annual increase of 10% and an expected return of 10% p.a. could accumulate approximately Rs. 1.5 crore by the age of 60. The NPS calculator helps in understanding the power of compounding and the importance of starting early. It helps investors understand how they can create substantial retirement savings through the NPS.
NPS customer support and contact details[5]
For assistance and inquiries related to the National Pension System, subscribers can reach out through the following channels:
- NPS Trust Website: https://www.npstrust.org.in/
- Email Support: grievance@npstrust.org.in
- Toll-Free Number: 1800-110-708
- Central Recordkeeping Agency (CRA) - NSDL e-Governance Infrastructure Limited:
- Website: https://www.npscra.nsdl.co.in/
- Email: info.cra@nsdl.co.in
- Phone: (022) 2499 3499
Conclusion
The National Pension System (NPS) serves as a robust retirement planning tool, offering a blend of flexibility, market-linked returns, and tax benefits. Its structured approach ensures that individuals can build a substantial corpus to secure their post-retirement life. Investors investing in bonds, mutual funds, and other securities can consider NPS as a way to diversify their investments. However, like all investment avenues, it's crucial to assess one's risk appetite, financial goals, and investment horizon before committing. Consulting with a financial advisor can provide personalized insights, ensuring that the NPS aligns with individual retirement objectives.
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Frequently Ask Questions
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What is the National Pension System?
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The National Pension System is voluntary retirement savings scheme based on a defined contribution. It is designed to enable systematic savings during the subscriber's working life to provide income after retirement.
Who is eligible to join the NPS?
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Any Indian citizen (resident or non-resident or OCI) between 18-70 years of age who complies with KYC norms can join the NPS.
Who can open an NPS account?
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Indian citizens, NRIs, and OCIs between 18-70 years can open an NPS account. Government employees join as per government guidelines.
Why should you go for NPS?
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NPS offers tax benefits, professional fund management, low costs, flexibility in investments, and a regulated environment for long-term retirement savings.
What are the Tier 1 and Tier 2 NPS accounts?
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Tier 1 is a mandatory, restricted withdrawal retirement account with tax benefits. Tier 2 is a voluntary savings account with no withdrawal restrictions but limited tax benefits.
Is there NPS for private sector employees?
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Yes, private sector employees can join NPS voluntarily through their employers (corporate model) or individually.
Will the Government put money into my NPS account?
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For government employees, the employer (government) contributes a matching amount. For private citizens, there is no government contribution.
How does NPS annuity income get taxed?
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The annuity income received after retirement is taxable as income in the year of receipt under the head "Income from Other Sources."
What is the User ID for NPS login?
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The PRAN (Permanent Retirement Account Number) serves as the User ID for NPS login purposes.
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