National Pension Scheme – A good scheme for Additional Tax Benefit

For those tax payers who have exhausted the limits u/s 80C, 80D, Housing Loan Interest etc, they can take additional deduction u/s 80CCD(1B) upto maximum of Rs. 50000/- by making a contribution in National Pension Scheme.

National Pension Scheme is a scheme launched by Government of India which is a contribution based scheme and it is MARKET LINKED. So this scheme is based on MARKET MOVEMENT and all the risks associated with the MARKET are integrated under this scheme.


To Download the NPS Booklet Please follow this link :    pdf-icon 1-1


  • There are two types of accounts under NPS. Tier I and Tier II.
  • TAX DEDUCTION UPTO MAXIMUM OF RS. 50000/- IS AVAILABLE ONLY IN TIER – I ACCOUNT. Tier – II account does not qualify for tax deduction.


  • Active Choice
    • Under this method, the investor himself chooses the asset class in which his money to be invested. He can select between Equity (E), Corporate Debt (C), or Government Securities (G). You can also allocate your investment by following any combination of these classes.
  • Auto Choice
    • Under this method, based on your age, the system automatically allocates your investment in these 3 asset classes. The age wise allocation is given in the NPS booklet.


  • Minimum Investment in Tier – I account is Rs. 6000/- per Annum.
  • There is no maximum limit of investment. But the additional deduction is only available for investment upto Rs. 50000/- per annum.



  • Tax benefit is available only on Tier I investment
  • Additional Tax benefit is available by way of deduction from taxable income upto maximum of Rs. 50000/-
  • It is a EET Scheme, which means that it is exempt at the time of investment, Exempt at the time of appreciation but taxable at the time of withdrawal.
  • The amount withdrawn from this account will be taxable in the year of withdrawal.



  • Exit after attaining age of 60 years


  • At least 40% of fund value to be converted into Annuity (Monthly Pension)
  • Balance Amount can be withdrawn as lumpsum.


  • Exit before attaining age of 60 years
    • At least 80% of fund value to be converted into Annuity (Monthly Pension)
    • Balance Amount can be withdrawn as lumpsum.


  • You may also contribute beyond age of 60 years. Both annuity and lump sum withdrawal can be deferred.


NPS Calculator

  • A good calculator is available in this link.

  • You can have a good view of return on your investment.



Author: Amit Mundhra CA
Amit Mundhra FCA is a Fellow member of the Institute of Chartered Accountant of India. He is senior partner in Karnani & Co., Chartered Accountants. He is having 20+ years of experience in Income Tax, GST, VAT, Accounting, Audit and Assurance field.

1 Comment


    Sir I am NPS Govt Employee. Since I have invested 1.5 Lakh in PPF, Can I claim my “Employee’s Contribution 10% of Salary” under new section 80CCD(1B)?

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