NPS: A golden plan for retirement

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National Pension Scheme

What are different Types of National Pension Scheme (eNPS) 

There are mainly two types of National Pension Scheme. One is called as Tier I account and other is called as Tier II account.  

Tier I Account: Tier I Account is the default account of National Pension Scheme. This account allows a tax deduction under section 80C up to Rs 1.5 lakh per annum and under section 80CCD( 1B) up to Rs 50,000 per annum. After the maturity age of 60, 40% of the corpus is tax free and can be withdrawn.  Another 40% must be used to buy an annuity. Rest 20% can be used for either of the purpose whether buying an annuity or can be withdrawn after paying taxes.   

Tier II Account:  Tier II is a voluntary retirement cum saving scheme, which can be opened only if you have a Tier I Account. They are free to invest and withdraw their funds, anytime according to their convenience. This account has no tax deduction for any private sector employee or self-employee.    

Who should invest in National Pension Scheme (eNPS) 

Any investor who wants to plan their retirement early in their life. For them NPS is one of the best schemes. Any employee who wants to have additional pension scheme apart from regular one especially the regular one, then this is one of the best ways. A pension scheme like this will help you in making a massive difference to your life post retirement. Apart from that salaried people who want to make most of the 80c of the deductions can also consider the same.   

 What is the Tax Benefits of National Pension Scheme (eNPS) ?   

There are various tax benefits of National Pension Scheme .  

  • You can claim a tax deduction of upto Rs 1.5 lakh can be claimed for NPS for your contribution as well as for the contribution of the employee 
  • You can claim tax benefit under section 80CCD (1), 80CCD(2), 80CCD(1B) of the income tax act.  
  • Under the 80CCD (1), of the Income tax act 80 (C), covers self-contribution. The salaried employees can claim a maximum deduction of 10% of their salary, while self- employed individuals can claim up to 20% of their gross income.  
  • Under the 80CCD (2), which is one of the part of section 80C, covers the employer’s contribution towards NPS. The maximum amount that an individual is eligible for deduction is either the employer’s NPS contribution or 10% of basic salary plus Dearness Allowance. 
  • You can claim an additional self-contribution (up to Rs 50,000 ) under section 80CCD (1B) as NPS tax benefit.

Comparison between National Pension Scheme (eNPS) and ELSS Fund 

 An comparison between National Pension Scheme and ELSS Fund.  

  Equity Linked Savings Scheme (ELSS)  National Pension Scheme (NPS) 
Lock-in period   3 years   It has a lock-in period up to retirement.  
Tax Benefits   Investor can claim a tax deduction of up to Rs 1.5L PA under the section 80C of the Income Tax.   Investor can claim a tax benefit of RS 1.5 lakh PA and additional Rs 50,000 under the Section 80ccc (1B) of the income tax act. 


Minimum Annual Investment   Invest as minimum as Rs 500 lump sum investment.   You can invest Rs 500 as initial contribution in a year. 


Premature Withdrawal   Funds invested in ELSS cannot be withdrawn prematurely  You can withdraw prematurely within certain limits.   


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