National Pension System (NPS): Tiers, Exit Rules, Tax Benefits and 2025 Changes
Last updated: 2026-11-13 · MockMentor
The National Pension System (NPS) is a market-linked, defined-contribution pension regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It started on 1 January 2004 for new Central Government employees (except the armed forces), was opened to all citizens on 1 May 2009, and to corporates in December 2011.
In one line: you save regularly in a pension account invested in equity and bonds, and at exit you take part as a lump sum and use the rest for an annuity.
At a glance
| Item | Details |
|---|---|
| Launched | 1 January 2004; all citizens from 1 May 2009 |
| Regulator | PFRDA |
| Ministry | Finance (Department of Financial Services) |
| Entry age | 18 to 85 |
| Not eligible | Hindu Undivided Families (HUFs) and Persons of Indian Origin |
| Equity cap | 75% under active choice |
| For minors | NPS Vatsalya (2024), minimum ₹250 a year |
Tier I and Tier II
| Feature | Tier I | Tier II |
|---|---|---|
| Nature | Pension account, needed to join NPS | Voluntary savings account, needs Tier I |
| Withdrawal | Restricted until 60 or retirement | Anytime |
Key 2025 changes
- No lock-in or vesting period: normal exit is possible any time after joining for those who join after 60.
- Partial withdrawals: up to four times before 60, with a four-year gap; medical treatment now covers any illness.
- Loans against NPS: a lender can mark a lien on up to 25% of the subscriber's own contribution.
- Systematic Lump Sum Withdrawal: the lump sum can be taken in instalments while the rest stays invested.
- Premature exit: if the corpus is above ₹5 lakh, at least 80% must buy an annuity; at or below ₹5 lakh, all of it can be withdrawn.
Tax benefits
- 80CCD(1): own contribution within the ₹1.5 lakh limit of Section 80C (old regime).
- 80CCD(1B): an extra ₹50,000 for Tier I (old regime).
- 80CCD(2): employer's contribution up to 14% of salary, available in both the old and new regimes.
- At exit, 60% of the corpus is tax-free under Section 10(12A).
Possible exam questions
- Compare the Old Pension Scheme, NPS and the Unified Pension Scheme. Which balances fiscal sustainability and old-age security best?
- Why is pension coverage low in India's informal sector? How can NPS and APY help?
Complete notes in our courses: this page gives the essentials. The Super-Elite and Elite courses carry the full chapter with every update merged in, plus practice MCQs. Compare the courses.
More in Finance Ministry schemes
- Unified Pension Scheme (UPS)
- Atal Pension Yojana (APY)
- PM Vaya Vandana Yojana (PMVVY)
- PM Jeevan Jyoti Bima Yojana (PMJJBY)
- PM Suraksha Bima Yojana (PMSBY)
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