National Pension Scheme for Government Employees

Q: Can I withdraw from NPS before retirement?

Yes, partial withdrawals up to 25% of your contributions are allowed 3 times during your service tenure for specific purposes

The National Pension Scheme (NPS) was introduced by the Government of India for Central Government employees (excluding the armed forces) who joined service on or after January 1, 2004. It is mandatory for such employees and has since been adopted by most state governments (except West Bengal). The scheme also covers employees of Central and State Autonomous Bodies like RBI, SEBI, and DTA.

Comparing NPS for Government Employees and NPS for Individuals

The major differences lie in the following rules and functions:

Feature

NPS for Government Employees

NPS for Individuals

Contribution

Mandatory: 10% of pay + DA by employee; up to 14% by Govt.

Voluntary; self-decided amount

Contribution Mode

Salary deduction via Nodal Officer

Self-initiated contributions

Registration

Done by Nodal Officer

Via PoP or eNPS portal

PRAN Access

Yes, for account tracking and management

Yes, with the flexibility to change fund manager, allocation

Investment Choice

Default options: SBI, LIC, UTI with fixed allocation

Free to choose a fund manager and asset allocation

NPS Calculator

Your Age

Years

18 Years 59 Years

Enter Your Age

Monthly Investment

₹

₹500 ₹10L

Enter Investment Per Month

Expected Return on Investment

5% 15%

Expected Return on Investment

Percentage of Corpus Allocated for Pension

40% 100%

Enter Corpus Percentage

Expected Return from Pension

5% 15%

Enter Annuity Return

₹0

Your Monthly Pension

₹0

Your Monthly Pension

Your Pension Calculation

Total Investment

Returns Earned

Maturity Amount

Maturity Amount split (Lumpsum & Pension)

60%

Lumpsum Amount

At the age of 60 Yrs

40%

Pension Wealth

At the age of 60 Yrs

Tax Benefits Under NPS for Government Employees

The National Pension Scheme (NPS) offers major tax-saving advantages for government employees. You can claim deductions under three sections of the Income Tax Act: Section 80CCD(1), 80CCD(1B), and 80CCD(2).

Section 80CCD(1): Deduction for Your Own Contribution

Eligibility:

Applicable to all salaried and self-employed individuals, including government employees.

Deduction Criteria:

Salaried individuals: Deduction allowed up to 10% of Basic Salary + Dearness Allowance
Self-employed individuals: Deduction allowed up to 20% of gross total income

Maximum Deductible Amount:

The deduction under this section is capped at ₹1.5 lakh per financial year.

Example:

Krishna is a government employee.
His annual Basic Salary + DA = ₹10,00,000
He contributes 10% of salary = ₹1,00,000 to NPS
Krishna can claim ₹1,00,000 under Section 80CCD(1)
This is part of the overall ₹1.5 lakh limit under Section 80C

Section 80CCD(1B): Extra Deduction on Voluntary Contribution

Eligibility:

Available to all NPS subscribers who choose to contribute an additional voluntary amount to their NPS account.

Deduction Criteria:

An extra deduction of up to ₹50,000 is available under this section, separate from the cap under Section 80CCD(1).

Example:

Krishna is a government employee.
He has already claimed ₹1.5 lakh under Section 80C (including 80CCD(1))
He invests an extra ₹50,000 voluntarily in NPS
Krishna can claim ₹50,000 more under Section 80CCD(1B)
Total tax deduction from NPS now becomes ₹2,00,000

Section 80CCD(2): Deduction on Employer's Contribution

Eligibility:

Available to salaried individuals, including government employees, whose employers make contributions to their NPS account.

Deduction Criteria:

Old Tax Regime: Up to 10% of Basic + DA
New Tax Regime (for central government employees): Up to 14% of Basic + DA

Exclusion from Personal Limits:

This deduction is over and above the limits applicable under Sections 80CCD(1) and 80CCD(1B), and does not count toward any combined ceiling on personal contributions.

Example:

Krishna is a central government employee
His annual Basic + DA = ₹12,00,000
His employer contributes 14% = ₹1,68,000 to NPS
Krishna can claim full ₹1,68,000 under Section 80CCD(2)
This is in addition to ₹2 lakh already claimed under 80CCD(1) + 80CCD(1B)

Conclusion

The National Pension Scheme for Government Employees is a reliable retirement plan with joint contributions, tax benefits, and long-term growth. It replaces the old pension system with a structured, market-linked approach. By investing regularly and understanding account rules, government employees can build a strong financial future. Use the NPS calculator to estimate your returns and start early for a stable, tax-efficient retirement.

FAQs

Can I withdraw from NPS before retirement?

Yes, partial withdrawals up to 25% of your contributions are allowed 3 times during your service tenure for specific purposes

Can I continue investing after retirement?

Yes, you can opt to continue NPS Tier 1 contributions up to the age of 70 by submitting a written request.

Can I continue my Tier 2 account after the closure of the Tier 1 account?

No. The NPS Tier 2 account gets closed along with the Tier 1 account closure.

What are the provisions to settle the cases in the death of NPS subscribers?

The government subscribers under NPS are eligible for family pension in case of death/disability. The pension passes on to the subscriber’s legal heir or the nominee.