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Plan for tomorrow and make the most of it today with NPS tax-saving benefits!

May 16, 2024

The National Pension System, since its introduction has become one of the popular retirement planning schemes among investors. One of the main features that attract investors is that NPS comes with tax-saving options. You can have the advantage of saving tax now while you prepare for the future. In this blog, we’ll have a look at some of the tax-saving benefits that come with NPS.

How does NPS work?

In a short time, it has become a popular investment option among investors planning for their golden years. Employees in the public, private, and even unorganized sectors are eligible for this pension plan, except those in the armed forces. The program encourages participants to make regular contributions to a pension account throughout their employment. Subscribers are entitled to withdraw a portion of the corpus upon retirement. After you retire, the balance will be paid to you as an NPS account holder as a monthly pension.

NPS tax-saving benefits under Income Tax Section’s Old Regime

Serial No.Income Tax Section For NPS DeductionDescription
1. 80CCD (1)Up to ₹1.5 lakh in self-contribution may be deducted from taxes as part of the NPS. 
2.  80CCD (2)The only person eligible for this benefit is the salaried individual. Under this section, employees in the private sector are entitled to 10% and those in the government to 14% of their salary. 
3.  80CCD (1B)You can deduct additional amounts for self-contribution up to a maximum of ₹50,000. 

Are you wondering about the other benefits of NPS? Read more about them here.

NPS Tax Benefit 

  1. On Partial Withdrawal: An investor may withdraw up to 25% of the corpus from the NPS Tier I account after three years of investment for particular uses like marriage, higher education for children, medical costs, and so forth. This NPS withdrawal is exempt from tax.
  2.  On Returns: NPS Tier I account returns are not subject to taxes until maturity. It follows that you will not have to pay taxes on any market-linked returns you receive.
  3. On Maturity: An investor may withdraw up to 60% of the corpus in one lump sum after turning 60. The remaining 40% has to be used to purchase annuities. There is no tax on either of these. However, pension amounts you receive through annuities are taxable.


Although NPS comes with many tax-saving benefits, it should be your only reason to invest in it. Everyone invests with a purpose and when it comes to retirement planning, you may want to invest in NPS that comes with some other benefits too.