How to get an income tax benefit from the National Pension System (NPS)

The National Pension System

The National Pension System (NPS) is a Government of India sponsored retirement scheme, under which the investor is given the option to invest in preferred classes like stock market, government securities. According to the National Securities Depository Limited (NSDL) website, an investor can know the current price of investment in his NPS account day by day. NSDL is the Central Recordkeeping Agency (CRA) for the NPS itself. Every employee is identified with a unique number, and every employee has a Permanent Retirement Account Number or PRAN.

In his first budget, Finance Minister Nirmala Sitharaman made some changes in the income tax rules on investment under the National Pension System (NPS). Sitharaman had raised the income tax exemption limit on withdrawals from National Pension Scheme (NPS) accounts and announced some additional income tax benefits for employees contributing to NPS accounts.

Important information related to National Pension System (NPS) are as follows…

How to open NPS account …?

NPS account can be opened by any Indian citizen between the age of 18 and 65 in two ways – online and offline. According to NSDL, any subscriber can apply for NPS account by going to Point of Presence (PoP), or he can apply online on e-NPS website

NPS Withdrawal Rules

According to NSDL, partial withdrawal from certain mandatory Tier 1 accounts under NPS is permitted under certain circumstances.

Read This Also: How to open NPS account online and how to change NPS allocation?

For withdrawal before the age of 60, the subscriber will have to leave at least 80 percent of the deposit in the pension account, so that he can be given a monthly pension. According to NSDL, the remaining 20 per cent of the amount is paid outright to the subscriber.

If the total deposit in the NPS account is less than two lakh rupees, then the subscriber can choose the option of 100 percent withdrawal when he is 60 years of age. In other cases, at least 40 percent of the deposit will have to be released in the pension account. According to NSDL, the remaining 60 per cent of the amount is paid outright to the subscriber.

In the event of death of the subscriber, his nominee has the option of 100% lump sum withdrawal. According to NSDL, in addition, the nominee can also choose to continue with the NPS account, for which he will have to fulfill the required KYC conditions and become a subscriber to the NPS.

How to get income tax benefits available under NPS scheme

An existing customer can avail of this at any time – service provider (PoP-SP) or alternatively can go to e-NPS website – to make additional contribution to Tier I account.

Any member associated with this scheme can submit transaction details as investment proof. All the customers associated with NPS can download the receipt of their deposited rupees in a Tier I account in a financial year by logging into their NPS account.

What are the income tax benefits available under NPS scheme?

In last year’s budget, the government had increased the income tax exemption from the National Pension System (NPS) to 40 percent withdrawals on 40 percent withdrawals.

The government proposed to separate the NPS Trust from the Pension Fund Regulatory and Development Authority (PFRDA). PFRDA had earlier implemented and controlled the National Pension System (NPS) through the NPS Trust. The trust was set up by the PFRDA to look after assets and rupees under the NPS.

Finance Minister Nirmala Sitharaman had proposed to increase the contribution limit in the accounts of its employees from 10 to 14 percent. As per the existing provisions, any NPS subscriber can claim tax deduction up to 10 percent of gross income under Section 80 CCD (1) of the Income Tax Act in the aggregate limit of Rs. 1.5 lakhs under Section 80 CCE of the Act.

According to NSDL website –, customers are exclusively exempted under Section 80CCD (1B) of the Income Tax Act on additional investment up to Rs 50,000 in NPS.

The amount invested in the purchase of a pension plan is also completely exempt from tax. However, the pension income that the customer receives in later years is subject to income tax.