The National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme initiated by the Government of India. It aims to provide retirement income to all citizens. The NPS was launched in January 2004 for government employees and later extended to all citizens including the unorganized sector workers. This extension took place in May 2009, when the NPS was made available to all Indian citizens aged between 18 and 60 years. It is managed by the Pension Fund Regulatory and Development Authority (PFRDA).
Under the NPS, individuals can contribute regularly towards their retirement savings during their working life. The contributions are invested in various market-linked instruments such as equities, government securities, corporate bonds, etc., based on the choice of the subscriber. The accumulated amount, along with returns, is used to provide pension after retirement.
The NPS offers two types of accounts:
- Tier-I Account: This is a mandatory account where withdrawals are restricted and primarily intended to create a retirement corpus. Withdrawals are permitted only under certain conditions like retirement or reaching a certain age.
- Tier-II Account: This is an optional account that allows subscribers to withdraw their savings anytime. It acts more like a savings account.
The NPS provides various tax benefits to subscribers. Contributions made to the NPS are eligible for tax deduction under Section 80CCD of the Income Tax Act, subject to certain limits. Additionally, withdrawals are also eligible for tax benefits under specific conditions.
Overall, the NPS is designed to encourage individuals to save for their retirement and provides a structured mechanism for long-term wealth accumulation.