National Pension Scheme: How to Save Tax, Earn Attractive Returns & Secure Your Financial Future

National Pension Scheme : Planning for a secure retirement is essential in today's fast-paced world. The National Pension Scheme (NPS) is a government-backed investment plan that not only helps you save taxes but also ensures a financially stable future.
Whether you are a salaried individual or self-employed, NPS offers a structured and reliable way to build a robust corpus for your golden years.
What Makes NPS an Ideal Investment Option?
NPS is managed by the Pension Fund Regulatory and Development Authority (PFRDA), making it a safe and transparent option for long-term investment. By investing in a mix of equities, government bonds, and corporate bonds, NPS provides a balanced approach to wealth creation.
If you are serious about retirement planning and are looking for a high-return, tax-saving investment, NPS could be the perfect solution for you.
Tax Benefits Under NPS
One of the key attractions of NPS is the significant tax savings it offers. Here’s a breakdown of the tax benefits available under various sections of the Income Tax Act:
Section 80CCD(1)
Under this section, salaried individuals can invest up to 10% of their basic salary and dearness allowance, while self-employed individuals can invest up to 20% of their gross income. The maximum tax deduction allowed is ₹1.5 lakh.
Section 80CCD(1B)
This section offers an additional tax deduction of up to ₹50,000, over and above the ₹1.5 lakh limit under Section 80CCD(1). This makes it possible to save a total of ₹2 lakh in taxes.
Section 80CCD(2)
Contributions made by employers to NPS accounts are tax-free and are deducted from the total taxable income. This benefit is available only to salaried individuals.
How NPS Helps Build a Strong Retirement Fund
NPS is designed for long-term wealth accumulation, making it an excellent tool for retirement planning. With investments spread across equities, government bonds, and corporate bonds, NPS provides stable and competitive returns.
Investment Modes
NPS allows investors to choose between two investment modes:
Auto Mode: In this mode, asset allocation changes automatically based on the investor’s age.
Active Mode: Here, investors have the flexibility to decide their asset allocation.
Potential Returns from NPS Investments
Let’s take a hypothetical example. If you start investing ₹5000 per month at the age of 30 and continue until 60, assuming an annual return of 8-10%, your total corpus could grow to around ₹1.5 crore.
Out of this:
60% (₹90 lakh) can be withdrawn tax-free as a lump sum.
40% (₹60 lakh) must be used to purchase an annuity, ensuring a lifelong monthly pension.
Withdrawal Rules Under NPS
NPS offers flexible withdrawal options, ensuring financial stability in your retirement years.
At the Age of 60:
60% of the total corpus can be withdrawn tax-free.
40% must be used to purchase an annuity, providing a steady monthly income.
Premature Withdrawals:
You can withdraw up to 25% of your contributions for specific purposes like children’s education, marriage, buying a house, or medical emergencies. However, only three withdrawals are allowed during the entire investment period.
How to Invest in NPS
Investing in NPS is simple and convenient, with both offline and online options available.
Offline Investment:
Visit any government or private bank or post office to open an NPS account. You will need to provide your Aadhaar card, PAN card, a canceled cheque, and your mobile number.
Online Investment:
You can also invest through platforms like Protean (NSDL), CAMS, and KFintech. Simply update your KYC details and start investing seamlessly.
Is NPS a Safe Investment?
Though NPS is market-linked and does not offer guaranteed returns, it has proven to be a stable and profitable option for long-term investors. The combination of equity and bonds ensures a balanced approach, providing both growth and stability.
Expert Opinion on NPS
Tax consultant Mohit Gang says, “NPS promotes disciplined long-term investment and offers impressive annual growth rates, often exceeding 10%. It’s a great way to secure a financially stable retirement.”
Why You Should Consider Investing in NPS
NPS is a versatile investment tool that offers multiple benefits:
Significant tax savings of up to ₹2 lakh.
Market-linked returns with high growth potential.
Tax-free lump sum withdrawal at the age of 60.
Lifelong pension from the mandatory annuity purchase.
If you want to secure your future and build a strong financial plan, investing in NPS could be one of the smartest decisions you make. Start today and pave the way for a financially secure retirement.