NPS National Pension System – How to Open an Account and Claim Tax Benefits

Updated on June 19, 2026

The National Pension System is a voluntary, long-term retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Originally meant only for government employees, it was opened to all Indian citizens between 18 and 70 years of age in 2009. Anyone wanting a disciplined way to build a retirement corpus with the flexibility to choose their own investment mix can open an NPS account.

How NPS Works

You contribute regularly into your NPS account during your working years. The money is invested across equity, corporate bonds, and government securities based on the allocation you choose. At retirement (age 60), you can withdraw a portion as a lump sum and must use the rest to buy an annuity that pays you a monthly pension for life.

Two Types of NPS Accounts

Account Type	Purpose	Withdrawal
Tier I	Primary retirement account. Mandatory for tax benefits.	Locked until 60, with limited partial withdrawal allowed after 3 years.
Tier II	Voluntary savings account. Can only be opened if you already have Tier I.	Withdraw anytime, no lock-in.

Tier I is what most people mean when they refer to “NPS”. Tier II works more like a flexible investment account without the tax benefits of Tier I (except for government employees in a specific Tier II scheme).

Investment Choices: Auto vs Active

• Auto Choice: Your equity exposure automatically reduces as you age, shifting toward safer bonds as you near retirement. Three sub-options: Aggressive (LC75), Moderate (LC50), and Conservative (LC25), based on the maximum equity allocation.
• Active Choice: You manually decide the percentage allocation between Equity (E), Corporate Bonds (C), Government Securities (G), and Alternative Investment Funds (A). Equity exposure is capped at 75% for most subscribers.

You can switch between fund managers and asset allocation up to 4 times per year.

How to Open an NPS Account Online

1. Go to enps.nsdl.com or npscra.nsdl.co.in.
2. Click “National Pension System” and then “Registration”.
3. Choose to register using Aadhaar (instant, paperless) or PAN with a bank account (requires bank verification).
4. For Aadhaar-based registration, enter your Aadhaar number and verify with OTP.
5. Fill in personal details: name, address, nominee details, and bank account.
6. Upload your photograph and signature.
7. Choose your Pension Fund Manager (PFM) from options like SBI Pension Fund, HDFC Pension, ICICI Prudential Pension, and others.
8. Select your investment choice (Auto or Active) and allocation.
9. Make the minimum initial contribution of Rs. 500 for Tier I.
10. Your PRAN (Permanent Retirement Account Number) is generated immediately and emailed to you.

You can also open an NPS account at any Point of Presence (PoP), which includes most major banks and post offices, by visiting a branch with your documents.

Minimum Contribution Rules

Requirement	Tier I	Tier II
Minimum at account opening	Rs. 500	Rs. 1,000
Minimum per contribution	Rs. 500	Rs. 250
Minimum contribution per year	Rs. 1,000	No minimum

Tax Benefits Under NPS

• Section 80CCD(1): Your own contribution to NPS qualifies for deduction up to 10% of salary (basic + DA), within the overall Rs. 1.5 lakh limit of Section 80C.
• Section 80CCD(1B): An additional deduction of up to Rs. 50,000 is available exclusively for NPS contributions, over and above the Section 80C limit. This makes NPS one of the few instruments offering tax benefit beyond Rs. 1.5 lakh.
• Section 80CCD(2): If your employer contributes to your NPS account, that contribution (up to 10% of salary for private sector, 14% for government employees) is deductible separately and does not count toward your personal limit.

Note: These deductions apply under the old tax regime. Under the new default regime, only Section 80CCD(2) employer contribution remains available; personal contribution deductions under 80CCD(1) and 80CCD(1B) are not available.

Withdrawal Rules at Retirement

At age 60, you must use at least 40% of your accumulated corpus to purchase an annuity (which provides your monthly pension). You can withdraw up to 60% as a tax-free lump sum.

If your total corpus at retirement is Rs. 5 lakh or less, you can withdraw the entire amount as a lump sum without buying an annuity.

For premature exit before age 60 (after a minimum of 10 years in the scheme), you must use at least 80% of the corpus to buy an annuity, with only 20% available as a lump sum.

Partial Withdrawal Before Retirement

NPS allows partial withdrawal of up to 25% of your own contributions (not the full corpus, only what you personally put in) after completing 3 years in the scheme, for specific purposes:

• Higher education of children.
• Marriage of children.
• Purchase or construction of a residential house (first house only).
• Treatment of specified critical illnesses.
• Skill development or re-skilling.

You can make up to 3 partial withdrawals during the entire tenure of your NPS account, with a gap of at least 5 years between withdrawals (except for medical emergencies).

Frequently Asked Questions

Is NPS better than EPF?

They serve different purposes and many salaried employees have both. EPF offers a fixed, government-declared interest rate with full liquidity at job change or retirement. NPS offers market-linked returns with the potential for higher growth over the long term, but carries equity market risk and mandatory annuitisation at retirement. Many financial planners suggest using both to balance safety and growth.

Can self-employed individuals open an NPS account?

Yes. Any Indian citizen between 18 and 70 can open an NPS account regardless of employment status. Self-employed individuals get the same Section 80CCD(1) and 80CCD(1B) tax deductions as salaried employees, though they obviously do not get the employer contribution benefit under 80CCD(2).

What happens to my NPS account if I do not contribute for a few years?

If your Tier I account does not receive the minimum annual contribution of Rs. 1,000, it becomes frozen. To reactivate, you pay the minimum due contribution plus a small reactivation penalty of Rs. 100. The account is not closed; your accumulated corpus continues to remain invested and earn returns even while frozen.

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