NPS Tax Saver: The Perfect Tax-Saving Investment Option for Retirement Planning

National Pension System (NPS) is a retirement savings scheme launched by the Government of India in 2004. The primary aim is to provide retirement benefits to employees in the organized sector. However, it has evolved over the years into a tax-saving investment option. It offers several benefits to investors. This article will discuss why NPS tax saver is an excellent tax-saving investment option. Plus, one can learn how it can help secure a financial future.

1. Tax Benefits of NPS

NPS offers tax benefits to investors under three different sections of the Income Tax Act – Section 80CCD(1), Section 80CCD(2), and Section 80CCD(1B).

Section 80CCD(1): Under this section, investors can claim a tax deduction of up to Rs 1.5 lakh on their contributions to NPS. This is at hand to both salaried and self-employed individuals. It is also known to Non-Resident Indians (NRIs).
Section 80CCD(2): This section allows an additional tax deduction of up to 10% of salaried individuals’ basic salary and dearness allowance (DA). This deduction is available over and above the deduction under the previous section. However, this is only available to salaried individuals.
Section 80CCD(1B): This section allows an additional tax deduction of up to Rs 50,000 on investments made in NPS. This deduction is available to all individuals, including salaried and self-employed individuals. This deduction is over and above the premises available under Section 80CCD(1) and Section 80CCD(2).

Therefore, investors can claim a tax deduction of up to Rs 2 lakh by investing in NPS. This makes NPS tax saver an attractive investment option for investors looking to save taxes and build a retirement corpus.

2. Investment Options in NPS

NPS offers two investment options – Active Choice and Auto Choice.

a. Active Choice: Under this option, investors can choose their asset allocation. They can invest in various asset classes, such as equities, corporate bonds, and government securities. They can also choose the percentage allocation to each asset class based on their risk appetite.
b. Auto Choice: This option automatically allocates the investment to various asset classes. It is based on the investor’s age. As one’s age increases, the allocation to equities decreases, and the allocation to debt increases.
Both options have advantages and disadvantages. Thus, investors should choose based on their investment objectives.

3. Low Cost and Transparency

NPS tax saver is a low-cost investment option. The fund management fee charged by the Pension Fund Manager (PFM) is capped at 0.01% of the assets under management (AUM). This means that investors pay a minimal fee for managing their investments. Additionally, it offers complete transparency. The investors can view their investments and returns on the online portal provided by the PFM.

4. Flexibility and Portability

NPS offers flexibility to investors in terms of investment amount and frequency. The minimum investment amount is Rs 500. Plus, there is no limit on the maximum investment amount. Investors can contribute to NPS monthly, quarterly, or annually based on ease. Additionally, NPS is a portable investment option. It means that investors can continue their investments even if they change their jobs or locations.

5. Annuity Options

At the time of retirement, investors can withdraw up to 60% of their accumulated corpus as a lump sum. The remaining 40% has to be invested in an annuity plan. This provides a regular income to the investor. NPS offers various options to investors, such as a lifetime annuity, a joint annuity, and a deferred annuity. Investors can choose an annuity option based on their requirements and preferences.

Additional Benefits

NPS tax saver allows many benefits and flexibilities. It even offers several other benefits to investors. These include:

  1. Professional Fund Management: NPS is managed by experienced PFM who invest the funds in various asset classes. It is done based on market conditions and investor preferences.
  2. Pension Fund Regulatory and Development Authority (PFRDA): NPS is regulated by PFRDA. This ensures the scheme is transparent and fair to investors.
  3. Safe and Secure: NPS is a safe and secure investment option as PFRDA regulates it. The investments are held in a separate trust called the NPS Trust.
  4. Flexibility to Change PFMs: Investors can change their PFM based on their performance and track record.


In a nutshell, NPS is a tax-saving investment option that offers several benefits to investors. Aids include tax benefits, flexibility, low cost, and transparency. It is a long-term investment option. The main motive is to provide retirement benefits to investors. Investors should choose an investment option based on their investment objectives and risk appetite. One should always consult a financial advisor before investing in NPS. This is to make an informed decision. NPS is a good investment option for individuals who save taxes and build a retirement corpus. It is a safe and secure investment option to help investors secure their financial future.

Shalini L

One of the prime contributors for this blog, Expertise in Staffing and Recruitment, Content Strategist by Profession. A Music Lover & Traveller by Choice.

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