Tax Benefits under NPS

The National Pension System (NPS) offers multiple tax advantages that help subscribers reduce their taxable income while building a robust retirement corpus. These benefits are available to individuals under both Old and New Tax Regimes, subject to specific conditions.

  1. Tax Deductions for Individual Subscribers

    Section 80CCD(1) – Deduction up to ₹1.5 lakh (including other eligible investments under Section 80C)

    Section 80CCD(1B) – Additional deduction of ₹50,000 exclusively for NPS contributions

    Note: Deductions under Sections 80C and 80CCD(1B) are available only under the Old Tax Regime.

  2. Tax Benefits on Employer Contributions (Section 80CCD(2))

    Corporate Sector:

    • Employer contribution up to 10% of Basic Salary + DA (Old Regime)
    • Employer contribution up to 14% of Basic Salary + DA (New Regime)
      These contributions are fully deductible from the employee’s taxable income.

    Government Sector:

    • Government contribution up to 14% of Basic Salary + DA is deductible under Section 80CCD(2)

    Important: The deduction limit for employer contributions under Section 80CCD(2) is ₹7.5 lakh per financial year.

  3. Tax Benefits on Withdrawals and Exit
    • Partial Withdrawals
      • Up to 25% of self-contributions for predefined emergencies (like education, marriage, medical needs) are fully tax-exempt
    • Premature Exit
      • On exiting NPS before retirement, 20% of the accumulated corpus can be withdrawn tax-free, while 80% must be used to purchase an annuity.
    • Maturity / Superannuation
      • On retirement, up to 60% of the total corpus can be withdrawn completely tax-free
      • Remaining 40% must be invested in an annuity, which provides a lifelong pension
    • Annuity Investment
      • The investment in an annuity from NPS corpus is exempt from GST
      • However, pension income received thereafter is taxable as per applicable income tax slab

NPS not only helps build your retirement corpus—it also enables you to save taxes every step of the way. Whether you're self-employed, salaried, or a corporate employee, NPS offers one of the most tax-efficient investment avenues available today.