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National Pension Scheme (NPS)
(Deduction of 50000 U/S 80CCD (1B) in addition to deduction of 150000 U/S 80C)

NPSThe National Pension Scheme - NPS has been launched with a motive to inculcate the habit of savings for retirement amongst citizens of India. Since Financial Year 2015-16 an additional deduction of 50000 has been introduced for investments in NPS and this has made the NPS  schemes very famous. This deduction is over and above the deduction of 150000 under Section 80C for different tax saving investments like ELSS, PPF, PF, Life Insurance etc..

NPS investment stands somewhere between the EEE(Exempt, Exempt, Exempt) and EET (Exempt, Exempt, Tax) category. The  amount invested (principal as well as the interest earend) is exempt at the time of withdrawal to the extent of 60%, however the balance 40% is mandatorily required to be invested in an Annuity Plan. Pension earned from those annuity plans will be taxable as per normal tax slab.

Various useful Links & Link to official page for opening e-NPS

Lets go through the various important facts about National Pension Scheme in detail:

Who can invest?


A citizen of India between the age of 18 years to 65 years can open an NPS account.
Types of NPS Accounts:

Tier-I : Pension Account-
  • Minimum contribution is ₹ 1000 in an year. 
  • Minimum amount to be deposited at one time is ₹ 500.
  • Investment can be made of any amount at any frequency as per your convenience.
  • There is minimal penal charge if minimum investment of ₹ 1000 in an year is not done. 
  • Withdrawals are permitted to a limited extend. Detailed withdrawal rules are given below.
Tier-II : Investment Account-
  • Its a voluntary tax saving option.
  • Minimum initital contribution is ₹ 1000.
  • There after minimum transaction amount is ₹ 250/-.
  • Its a liquid account as withdrawals can be made any time. 
  • No tax benefit is available for investments in Tier II accounts.
  • Having a Tier-I account is must to start a Tier-II account of NPS. Else we can say Tier-II account can only be opened after opening a Tier-I account.

Withdrawals from the account

  • Tier-II account: Withdrawals are permitted without any limit and at any time only from Tier-II account.

  • Tier-I account: 
    • Before 60 years of age:
    In case of exit from NPS before 60 years of age, only 20% of the accumulated amount of NPS can be withdrawn in lumpsum and remaining 80% is required to be invested in an annuity plan.
    • After 60 years of age:
    In case of exit from NPS on/after 60 years of age, 60% of the accumulated amount of NPS can be withdrawn in lumpsum and remaining 40% is required to be invested in an annuity plan.
    • Partial withdrawal at any age:
    Partial Withdrawal from Tier I account is permissible to a limited extent of 25% for specified reasons (like Children higher education, critical illness, purchase/construction of house, children's marriage) and only after staying in NPS for minimum 10 year.

  • In case of death of the subscriber of NPS, accumulated funds will be given to the nominee/legal Heir.
Income Tax Benefits

Tier-I Account for Salaried People:
  • Investments in Tier-I account of NPS is eligible for an additional deduction of ₹ 50000/- U/s 80CCD(1B) as introduced by Finance Act 2015. This deduction of ₹ 50000 is over and above the deduction of ₹ 150000 u/s 80C for other tax savings like ELSS, PPF, PF, Life Insurance etc..
  • Employers contribution to NPS of employee: If an employer contributes to NPS for his employees, the contribution upto 10% of Basic salary+DA will be eligible for deduction u/s 80CCD(2), over and above the deduction of ₹ 150000 u/s 80C for other tax savings like ELSS, PPF, PF, Life Insurance etc
  • Investment in Tier-I account also qualifies for deduction as a tax saving investment (upto 10% of Basic salary+DA) U/s 80CCD(1) within the maximum limit of tax savings of ₹ 150000. However after introduction of additional deduction for NPS of ₹ 50000, this option should be resorted to only for that part of NPS investment which exceeds ₹ 50000.
Tier-I Account for Self Employed People:
  • For investments in Tier-I account of NPS, an additional deduction of ₹ 50000/- U/s 80CCD(1B) has been introduced by Finance Act 2015. This deduction of ₹ 50000 is over and above the deduction of ₹ 150000 u/s 80C for other tax savings like ELSS, PPF, PF, Life Insurance etc..
  • Investment in Tier-I account also qualifies for deduction as a tax saving investment upto 20% of Gross total Income U/s 80CCD(1) within the maximum limit of tax savings of ₹ 150000. However after introduction of additional deduction for NPS of ₹ 50000, this option should be resorted to for that part of NPS investment which exceed ₹ 50000.
Tier-II Account :
  • There is no tax benefit for investments in Tier-II account of NPS.
Other Points
  • NPS offers the flexibility to design your portfolio according to your risk appetite.
  • Under Active choice option you can chose to allocate your funds amongst asset class from ECG. Here E-Equity, C-Corporate Debt & G-Government Securities.
  • There is another option to go for Auto Choice. Here your funds will be allocated in all the three asset classes (ECG) in defined proportions as per your age.
  • Cost of investing in NPS is very low as compared to other mutual fund investment options.

  • If you fall in 30% tax bracket and have exausted the full tax saving of ₹ 150000 u/s 80C, then it is advisable to invest ₹ 50000 in NPS Tier-I account for additional deduction of ₹ 50000 u/s 80CCD(1B).
  • In any case NPS investment shall be looked for after exausting the total limit of ₹ 150000 for tax saving options u/s 80C like ELSS, PPF, PF, Life Insurance etc.
  • NPS investment is recommended for it being a retirement security.

Quick Links:

Which Tax Regime to opt for? New Vs. Old Tax Regime!!

Tax treatment of Pension Income

ELSS-Guide to decide about the right ELSS for you

Deduction Under Section 80D for mediclaim insurance premium

Deduction Under Section 80DD for maintenance of differently abled dependents

Deduction Under Section 80E on Education Loan

Deduction Under Section 80U to Differently abled persons

Deduction Under Section 80GG for rent paid


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