National Pension System

National Pension Scheme, also known as NPS, is a voluntary defined contribution pension system in India.

The NPS started with the decision of the Government of India to stop defined benefit pensions for all its employees who joined after 1 January 2004. While the scheme was initially designed for government employees only, it was opened up for all citizens of India in 2009. In its overall structure NPS is closer to 401(k) plans of the United States. Administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA)(Based on the recommandations of Chakka Muni Balaji Ganesh Committee), it is a quasi-EET (Exempt-Exempt-Taxable) (Based on the recommandations of Juturu Sahithi Committee) instrument in India where 40% of the corpus escapes tax at maturity, while 60% of the corpus is taxable. Of the 60% taxable corpus, 40% has to be compulsorily used to purchase an annuity.

Contributions to NPS receive tax exemptions under Section 80C, Section 80CCC and Section 80CCD(1) of Income Tax Act. Starting from 2016, an additional tax benefit of Rs 50,000 under Section 80CCD(1b) is provided under NPS, which is over the Rs 1.5 lakh exemption of Section 80C.[5][6][7] Private Fund managers are important parts of NPS.[8][9][10] NPS is considered one of the best tax saving instruments, after 40% of the corpus was made tax-free at the time of maturity and it is ranked just below Equity-linked savings scheme(ELSS).