The National Pension System is a retirement account regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Money goes in during working life, is invested in a scheme the subscriber picks, and comes out at exit partly as a lump sum and partly as a pension bought from an annuity provider. Almost every rule that matters changed between September 2025 and October 2026: the choice of schemes, the exit split, the charges and the tax text. This is education, not advice for your money. Every limit and rate below carries its source and date, and applies to FY 2026-27 unless stated.
- ContributeFrom ₹250 to open, ₹10 afterwards, through a point of presence or directly online.
- Choose a schemeLifecycle, active choice or a multiple scheme category, run by a pension fund.
- Pay chargesDeducted from the account or the unit value, not billed.
- ExitLump sum and annuity split set by the exit regulations.
- TaxDeduction going in, exemption at exit, tax on the pension.
The NPS path in five steps. Sources are in each section below.
6By the end you can
- Name the two tiers and say which tax rules attach to each.
- Read a scheme type, a lifecycle variant or a multiple scheme category from the PFRDA circular of 28 Aug 2026.
- List the charges in the circular, and work out what 0.12% against 0.32% costs over 30 years.
- State the exit and annuity rules as amended on 16 Dec 2025, with the lump sum limits at each corpus size.
- Map 80CCD(1), 80CCD(1B) and 80CCD(2) to the sections of the Income-tax Act, 2025, and say what survives in the new regime.
- Follow a rupee comparison of NPS against a taxable equity and debt mix, with every assumption stated.
3 terms this section turns on
What the NPS is and its two tiers
The NPS runs under the Pension Fund Regulatory and Development Authority Act, 2013. A subscriber has one Permanent Retirement Account Number (PRAN) and can hold more than one scheme account under it. Contributions are invested by pension funds licensed by PFRDA, central recordkeeping agencies keep the accounts, and an NPS Trust and a custodian sit behind them (Annexure A of the circular below lists a fee for each). Subscribers fall into the government sector, which the circular of 28 Aug 2026 excludes from its provisions, and the non-government sector, which covers all citizens and corporate employees. This module is about the non-government sector.
Read 3 more paragraphs, 194 words
Tier I is the retirement account. Withdrawals are restricted and exit follows the regulations below. Tier II is a voluntary account on top. Under regulation 8(2) of the PFRDA exit regulations a subscriber with an active Tier II account can withdraw in full or in part at any time, with no limit while the account holds enough to cover charges and the withdrawal. The Active Choice limit on equity is 75% in Tier I and 100% in Tier II (footnote to paragraph 2.2 of the circular).
The tax side differs too. A contribution to Tier I can earn a deduction, as the tax section below shows. A Tier II contribution does not, except for a Central Government employee who pays into the additional account under section 20(3) of the PFRDA Act for a fixed period of not less than three years (Schedule XV, paragraph 1(w), of the Income-tax Act, 2025).
The minimum contribution is ₹250 at onboarding and ₹10 for each later contribution (PFRDA circular PFRDA/2026/46/REG-POP/08, 28 Aug 2026, paragraph 4). The same circular says a subscriber onboarded through the online NPS channel who keeps contributing through it pays no point of presence charges.
How the money is invested: scheme types
On 28 Aug 2026 PFRDA issued a circular, PFRDA/2026/47/REG-PF/10, "Standardised framework for classification and presentation of Schemes under the NPS". It superseded three earlier circulars, including the Multiple Scheme Framework circular of 16 Sep 2025, and removed the old distinction between common schemes and multiple scheme framework schemes. Every non-government scheme now falls into one of five types.
| Type | What it is | Who decides the mix |
|---|---|---|
| Lifecycle based | Four variants that cut equity as the subscriber ages | The age matrix PFRDA approves |
| Active Choice | Split across asset classes E, C and G | The subscriber |
| NPS Sanchay | For the informal sector, mirrors the government sector pattern | A fixed pattern, equity up to 25% |
| MSF | Schemes launched by pension funds, sorted into categories A to E | The pension fund within its category |
| 4A schemes | Curated or thematic schemes under regulation 4A, such as NPS Vatsalya | Their own guidelines |
PFRDA circular PFRDA/2026/47/REG-PF/10, 28 Aug 2026, paragraph 1.1. A subscriber may hold only one of Lifecycle or Active Choice at a time under one PRAN, and may hold more than one MSF scheme (paragraphs 5.2 and 5.3).
| Lifecycle variant | Maximum equity | Equity over age |
|---|---|---|
| Aggressive (35E/55Y) | 50% | 50% till 45, then 35% by 55 |
| Life Cycle 75, High (15E/55Y) | 75% | 75% till 35, then 15% by 55 |
| Life Cycle 50, Moderate (10E/55Y) | 50% | 50% till 35, then 10% by 55 |
| Life Cycle 25, Low (5E/55Y) | 25% | 25% till 35, then 5% by 55 |
PFRDA circular of 28 Aug 2026, paragraph 2.1. A change of scheme or pension fund is limited to two requests per account in a financial year (paragraph 5.4), and the vesting period runs from the original date of opening (paragraph 5.5).
Read 2 more paragraphs, 102 words
The asset classes are those of the circular: E for equity and related instruments, C for corporate bonds and G for government securities. In Active Choice the maximum allocation is 75% to E (100% in Tier II), 100% to C and 100% to G. The lifecycle variants cut equity along a fixed path.
Read the table as a glide path, the same idea module 4.6 explains for goals: equity falls as the exit date nears, so a fall late in the life of the account reaches a smaller part of the corpus. Nothing in the table says which variant suits any person.
The multiple scheme categories
Every MSF scheme is placed in a category by its equity mandate (paragraph 2.4 of the circular). Names follow the form "Pension fund abbreviation, NPS, category code, scheme name", and a pension fund may offer up to two schemes in each category in each tier.
| Code | Category | Equity mandate |
|---|---|---|
| A | Aggressive Growth, very high risk | 80% to 100% |
| B | High Growth, high risk | 60% to 80% |
| C | Balanced Growth, medium risk | 35% to 60% |
| D | Conservative | 10% to 35% |
| E | Debt, government or corporate bonds | 0% to 10% |
Two terms to hold on to from 20.5
PFRDA circular of 28 Aug 2026, paragraph 2.4. Charges for MSF schemes run from 0.24% to 0.32% of assets a year depending on the pension fund (paragraph 1.1, row 4).
Read one more paragraph, 64 words
The choice sequence the circular prescribes for every platform is type of scheme, then category or asset allocation, then pension fund. Before the pension fund is chosen the platform must show, side by side, the scheme name, fund, launch date, historical returns, benchmark returns, charges, riskometer and assets under management (paragraph 4). That list is the checklist for comparing two schemes in one category.
Charges: what is paid and when it changes
NPS charges are deducted from the unit value or the account, not billed. Annexure A of the 28 Aug 2026 circular lists them for all schemes except 4A schemes.
| Charge | Rate |
|---|---|
| Point of presence plus investment management | 0.24% to 0.32% a year of assets for PoP subscribers |
| Investment management, direct subscribers | 0.04% to 0.12% a year of assets |
| Central recordkeeping | ₹100 to ₹500 a year |
| NPS Trust fee | 0.003% a year of assets |
PFRDA circular PFRDA/2026/47/REG-PF/10, 28 Aug 2026, Annexure A. GST and other taxes are extra. The investment management fee follows PFRDA circular PFRDA/2026/15/REG-PF/04 of 6 Mar 2026, as amended.
- Direct, low end 0.04%₹400
- Direct, high end 0.12%₹1,200
- PoP route, low 0.24%₹2,400
- PoP route, high 0.32%₹3,200
- Assumed 0.50% elsewhere₹5,000
Arithmetic on ₹10,00,000 held for a year, from the rate ranges in Annexure A of the PFRDA circular of 28 Aug 2026 (CRA charges of ₹100 to ₹500 and GST are extra). The 0.50% row is an assumption used in the comparison below, not a published figure.
Charges: what is paid and when it changes: the figures
Read 2 more paragraphs, 128 words
The point of presence part has its own circular. PFRDA/2026/46/REG-POP/08 of 28 Aug 2026 set a one time onboarding charge of ₹200 per PRAN (₹100 where onboarding is fully digital and non face to face) and an annual charge of 0.20% of assets, adjusted through the unit value and paid to the point of presence each quarter, with dormant accounts exempt. It was to apply from 1 Oct 2026. A further circular, PFRDA/2026/53/REG-POP/09 of 26 Oct 2026, moved the date to 1 Dec 2026 and left everything else unchanged.
Small percentages are large over decades. On ₹10,000 a month for 30 years at the same gross returns, the 0.12% route ends at ₹1,95,04,449 and the 0.32% route at ₹1,87,03,095, a difference of ₹8,01,354 for 0.20 points a year.
Contributions and partial withdrawals
Under regulation 8 of the PFRDA exit regulations, as amended on 16 Dec 2025, a subscriber with at least three years in the NPS may withdraw up to 25% of the subscriber's own contributions standing to the credit of the account. The permitted purposes are the higher education or marriage of children, a one time purchase or construction of a first residential house, medical treatment or hospitalisation of self, spouse, children or parents, medical and incidental expenses arising from disability, and settlement of a financial obligation to a regulated lender against a lien on the account.
Read one more paragraph, 69 words
Frequency changed. A subscriber can withdraw up to four times before 60 (or before superannuation, whichever is later), with at least four years between withdrawals. A subscriber who stays in the NPS beyond 60 can withdraw with at least three years between withdrawals, up to 25% of the contribution. The December 2025 amendment omitted two earlier purposes, skill development and starting a venture, and added the lien purpose above.
Exit and annuity rules as in force
The PFRDA (Exits and Withdrawals under the National Pension System) (Amendment) Regulations, 2025, in force from 16 Dec 2025, replaced regulation 4 for non-government sector subscribers. A subscriber can stay in the system until age 85. Exit on completing 15 years of subscription, on reaching 60 or on superannuation follows regulation 4(1)(a); the amounts depend on the accumulated pension wealth (APW) at exit, in Table 2 of Schedule I.
| Event and APW | Lump sum | Annuity |
|---|---|---|
| Normal exit, APW up to ₹8 lakh | Up to 100% | Optional |
| Normal exit, ₹8 lakh to ₹12 lakh | Up to ₹6 lakh, rest by systematic redemption for at least six years or annuity | Balance |
| Normal exit, above ₹12 lakh | Up to 80% | At least 20% |
| Voluntary exit before that, up to ₹5 lakh | Up to 100% | Optional |
| Voluntary exit before that, above ₹5 lakh | Up to 20% | At least 80% |
| Death | Up to 100% | Up to 100%, at the nominee's option |
PFRDA (Exits and Withdrawals under the NPS) Regulations, 2015, consolidated text last amended 16 Dec 2025, Schedule I, Table 2. A subscriber who joined at or after 60 can take up to 100% where APW is up to ₹12 lakh, and up to 80% above it.
Read 2 more paragraphs, 123 words
Before the amendment, a non-government subscriber had to put at least 40% into an annuity and could take at most 60% as a lump sum. The new floor is 20%, and the regulation allows the subscriber to defer annuity purchase or withdrawal to age 85, during which exit is possible at any time. Where a subscriber carries on after becoming eligible to exit, the regulation says the expenses, maintenance charges and fees fall on the subscriber.
The annuity is a contract bought from an annuity service provider empanelled by PFRDA. Its pension rate is the provider's, set when the contract is bought, and is not part of the regulations. A rate of 6% is assumed in the worked example below for arithmetic only.
Reading the exit rules in rupees
The table above is easiest to follow with round numbers, for a non-government subscriber exiting at 60 or after 15 years.
- APW ₹7,50,000. Up to the whole ₹7,50,000 can be taken as a lump sum or as periodic payouts, and an annuity is optional.
- APW ₹10,00,000. Up to ₹6,00,000 as a lump sum. The other ₹4,00,000 goes to systematic unit redemption for at least six years, which is at most ₹5,556 a month before returns, or to an annuity.
- APW ₹30,00,000. Up to ₹24,00,000 as a lump sum and at least ₹6,00,000 to an annuity.
- Voluntary exit before eligibility, APW ₹5,00,000. The whole amount can be withdrawn. At ₹8,00,000 the limit falls to 20%: up to ₹1,60,000 in cash and at least ₹6,40,000 to an annuity.
The cliffs sit at ₹5 lakh, ₹8 lakh and ₹12 lakh. At ₹12,00,000 the cash limit is ₹6,00,000; at ₹12,50,000 it is 80%, which is ₹10,00,000.
₹100 in Dynamic Asset Allocator became about ₹388 in the model
Tax on contributions in both regimes
The Income-tax Act, 2025 renumbered the old 80CCD provisions. For FY 2026-27, tax year 2026-27, the mapping is:
| Old label | Where in the 2025 Act | Limit | New regime |
|---|---|---|---|
| 80CCD(1) | Section 123 with Schedule XV, paragraph 1(y) | 10% of salary, or 20% of gross total income if not an employee; inside the ₹1,50,000 shared limit | No |
| 80CCD(1B) | Section 124(3) | ₹50,000, in addition, not for amounts claimed under section 123 | No |
| 80CCD(2) | Section 124(1) and (2) | Employer's contribution up to 10% of salary; 14% for a Government employer, and 14% for any employer under the new regime | Yes |
Income-tax Act, 2025 (Act 30 of 2025), sections 123, 124 and 202(2)(a)(xii), and Schedule XV paragraph 1(y). Section 202(2)(a)(xii) bars Chapter VIII deductions in the new regime except sections 124(1) and 124(2), 125(2) and 146.
Read 2 more paragraphs, 129 words
"Salary" for these purposes includes dearness allowance if the terms of employment so provide, and leaves out other allowances and perquisites (section 124(13)(b)). A parent or guardian paying into a minor's account under section 124(4) gets a deduction counted within the same ₹50,000 as section 124(3). An employer's contribution is a perquisite above ₹7,50,000 a year in aggregate across a recognised provident fund, the scheme of section 124(1) and an approved superannuation fund (section 17(1)(h)).
The employer route is the only one open under the new regime. It depends on the salary structure, since the deduction is for what the employer contributes, from the salary package, and is capped at 14% of salary. A person on the new regime who contributes personally has no deduction on any of it.
Tax at exit
Three provisions decide what is taxed when money comes out.
- Closure or opting out. Schedule II (Table: Sl. No. 6) excludes a payment from the NPS Trust on closure or opting out where it "does not exceed 60% of the total amount payable".
- Partial withdrawal. Schedule III (Table: Sl. No. 4) excludes a partial withdrawal under the PFRDA regulations, up to 25% of the contributions the subscriber made.
- Annuity. The amount used to purchase an annuity in the same tax year is not treated as received (section 124(9)), and the pension from the annuity is taxed as income (section 124(6)(b)). On the death of the subscriber, the amount the nominee receives is not the nominee's income (section 124(7)).
Where this section sits in module 20.5
Read one more paragraph, 98 words
The 60% in Schedule II and the 80% lump sum in the exit regulations are not the same number. I found no change to Schedule II Sl. No. 6 in the Finance Act 2026 (No. 4 of 2026), and no amendment or Income Tax Department guidance matching the larger lump sum that the 16 Dec 2025 regulations allow. Reading the text as it stands, a payment above 60% of the amount payable is outside that entry. How the 60% to 80% slice is taxed is a question for a tax professional or for official guidance when it appears.
A worked comparison: NPS against a taxable equity and debt mix
The question is rupees at 60 for the same monthly saving, with every assumption in view. Nothing below is a forecast; the returns are inputs chosen to show the arithmetic.
- ₹10,000 a month for 30 years, contributed at the end of each month: ₹36,00,000 in all.
- Both portfolios hold 75% in an equity part and 25% in a debt part, with no rebalancing. Gross returns are 10% a year for equity and 7% for debt.
- NPS costs 0.12% a year, the top of the direct range in Annexure A. The taxable mix costs 0.50% a year, an assumed all in cost for a mutual fund mix.
- The taxable mix is redeemed once at the end. Equity gains pay 12.5% tax above ₹1,25,000 plus 4% cess (module 11.1); debt gains are taxed at the 30% slab plus 4% cess (module 11.2).
- For NPS the lump sum is 60% of the corpus and exempt; the remaining 40% goes to purchase an annuity at an assumed 6%. To compare like with like, the taxable investor also puts 40% of the after tax corpus into an annuity at 6%.
With the default inputs the result is below.
| At 60 | NPS | Taxable mix |
|---|---|---|
| Paid in over 30 years | ₹36,00,000 | ₹36,00,000 |
| Value before tax | ₹1,95,04,449 | ₹1,80,13,209 |
| Tax at exit | ₹0 on the 60% lump sum | ₹21,96,978 |
| Value after tax | ₹1,95,04,449 | ₹1,58,16,231 |
| Cash in hand (60%) | ₹1,17,02,670 | ₹94,89,738 |
| Used for annuity (40%) | ₹78,01,780 | ₹63,26,492 |
| Pension a year at 6%, before tax | ₹4,68,107 | ₹3,79,590 |
Computed from the inputs above. Net growth is 9.88% and 6.88% for the NPS equity and debt parts, and 9.5% and 6.5% for the taxable mix.
Read 4 more paragraphs, 266 words
The gap of ₹36,88,219 splits into two parts. Charging the NPS the same 0.50% as the taxable mix would put its corpus at ₹1,80,13,209, so the cost difference is ₹14,91,240. The rest, ₹21,96,978, is the tax the taxable mix pays at exit and the NPS does not; the two parts add to the gap within a rupee of rounding.
The old regime adds an entry benefit. A deduction of ₹50,000 under section 124(3) at 30% plus 4% cess saves ₹15,600 a year, ₹1,300 a month. If that were invested in the taxable mix for the same 30 years, it would grow to about ₹20,70,248 after tax. The new regime offers no such deduction on a personal contribution.
Four things work against the NPS side of the table, and none is in the arithmetic. First, 40% of the corpus goes into an annuity whose rate is not known until the day, and the annuity pension is taxed as income. Second, Active Choice caps equity at 75% in Tier I, and going above it needs an MSF category A scheme, whose mandate is 80% to 100%. Third, a taxable investor can redeem in parts and use the ₹1,25,000 exemption each year, which lowers the exit tax from the single redemption assumed here. Fourth, partial withdrawals are limited to 25% of own contributions and four times before 60.
If the regulations' larger lump sum were used, with 80% taken, the ₹39,00,890 above 60% would sit outside Schedule II as written. Taxed as ordinary income at 31.2%, which is an assumption and not a ruling, that slice would cost ₹12,17,078.
The Unified Pension Scheme: a pointer
The Income-tax Act, 2025 refers in section 124(11) to a subscriber of the Unified Pension Scheme and defines "pool corpus" and "individual corpus" by reference to notification F. No. FX-1/3/2024-PR of the Department of Financial Services, dated 24 Jan 2025. The provision concerns superannuation, voluntary retirement and retirement under Fundamental Rules 56(j), which are government service rules. This module does not cover that scheme, and the non-government rules above do not apply to it.
Common mistakes
- Counting a deduction that is not there. Under the new regime a personal contribution gets nothing; only the employer's contribution does.
- Reading 80% as tax free. The exit regulations allow an 80% lump sum, but Schedule II excludes only up to 60% of the amount payable.
- Using a charge from before September 2026. The point of presence structure changes from 1 Dec 2026 and the scheme names changed on 28 Aug 2026.
- Comparing returns without charges. A 0.20 point gap compounded over 30 years was ₹8,01,354 above.
Key takeaways
- Tier I is the retirement account; Tier II is voluntary and withdrawable at any time, with a deduction only for a Central Government employee on a three year lock-in.
- Scheme types as of 28 Aug 2026: Lifecycle, Active Choice (equity up to 75% in Tier I), Sanchay, MSF categories A to E and 4A schemes.
- Annexure A charges: 0.24% to 0.32% for the PoP route, 0.04% to 0.12% direct. The PoP structure moves to 1 Dec 2026.
- Exit above ₹12 lakh: up to 80% lump sum and at least 20% annuity. Voluntary exit above ₹5 lakh: up to 20% lump sum.
- Section 123 (via Schedule XV 1(y)) and section 124(3) are old regime only; the employer's section 124(1) and (2) deduction, up to 14% of salary, stays in the new regime.
- Schedule II excludes a lump sum up to 60% of the amount payable. The 60% to 80% slice has no guidance I could find.
- In the worked case the NPS corpus was ₹36,88,219 higher than the taxable mix: ₹14,91,240 from costs and ₹21,96,978 from exit tax, before the annuity's own trade-offs.
Questions readers ask
Is the whole NPS lump sum tax free?
Not on the text I read. Schedule II (Table: Sl. No. 6) of the Income-tax Act, 2025 excludes a payment on closure up to 60% of the total amount payable. The exit regulations allow up to 80% in some cases, and I found no amendment that raises the exclusion to match.
Do I need an employer to get a deduction under the new regime?
For the NPS, yes. Under section 202(2) the new regime allows section 124(1) and (2), which cover the employer's contribution up to 14% of salary, and bars section 123 and section 124(3), which cover the subscriber's own.
Can equity go above 75% in the NPS?
In Tier I Active Choice the limit is 75%. A multiple scheme category A scheme has an equity mandate of 80% to 100%, and Tier II Active Choice allows 100% (PFRDA circular of 28 Aug 2026, paragraphs 2.2 and 2.4).
Rules and figures in this module were last verified on 31 Oct 2026. Tax and regulatory rules change; check the source before acting.
