National Pension System
Government-backed, regulated by PFRDA, and cheaper than any other professionally managed product in India. In exchange it locks your money until you are 60. Here is the honest version of that trade.
Tier I
The retirement account- Carries the tax benefits, and is locked until you are 60
- ₹500 to open, ₹1,000 a year to keep active
Tier II
Optional savings- No lock-in, and no tax deduction either
- Same managers, same low charges — needs Tier I first
You can switch pension fund manager and change your equity/debt mix later — one of the few Indian retirement products that lets you undo your first decision.
The tax question
Which regime you are on changes the answer completely.
Two of the three deductions below vanished for anyone who moved to the new regime. Most NPS pages skip that.
80CCD(1)
Old regime onlyYour own contribution, inside the ₹1.5 lakh limit
Counts towards the same ₹1.5 lakh ceiling as PPF, ELSS and life insurance premiums — so it competes with them rather than adding to them.
80CCD(1B)
Old regime onlyAn extra ₹50,000, over and above that limit
This is the deduction people actually open NPS for. It sits on top of the ₹1.5 lakh, taking the total to ₹2 lakh, and it applies only to Tier I.
80CCD(2)
Both regimesWhat your employer puts in
The only NPS deduction that survives in the new tax regime. The cap is a percentage of your salary and differs by regime and employer, so confirm the exact figure with your CA before planning around it.
Up to 80% as a lump sum, not 60%
PFRDA loosened the exit rules at the end of 2025 — a real improvement, with conditions most coverage left out.
- Non-government subscribers, with at least 15 years in NPS
- The remaining 20% must buy an annuity — it was 40% before
- A corpus of ₹8 lakh or less can be taken out in full
Exit before 60 and the split inverts: 20% as a lump sum, 80% into an annuity. The lump sum is not taxed on withdrawal. The annuity that follows is pension income, taxed at your slab rate in the year you receive it.
Questions we get
The ones worth asking.
If yours is not here, send it on WhatsApp. We would rather answer it than have you guess.
Ask a questionTier I is locked until 60. Since December 2025 the exit is easier — see the panel above. Leaving before 60 is the expensive door: only 20% comes out as cash and the rest has to buy an annuity.
Tax rules and PFRDA regulations on this page were last checked in September 2026 and can change with any Budget or circular. This is general information, not a tax opinion or a suggestion to buy any product. Confirm your own position with a qualified professional before acting. Krystal Capitals is an AMFI Registered Mutual Fund Distributor (ARN 272635).
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