What Is NPS? Tax Rules, Exit Rules and Who Can Join

Ask what age you can open an NPS account and the internet gives three answers. Banks and aggregators say 18 to 70. One large bank says 18 to 60 with deferral to 70. PFRDA and the NPS Trust, the regulator and the body that runs the scheme, both say 18 to 85.

The age limit is the easy question. Tax is the hard one, and there the published record is worse. Of twenty-four pages we read, five state the new-regime position correctly and twelve or more avoid it entirely.

Then there's the December 2025 exit amendment. Nine of the fourteen pages carrying withdrawal figures publish rules it superseded, and one of those was refreshed in April 2026 and still prints the old numbers.

What follows works from PFRDA, the NPS Trust and the Income Tax Department directly: what NPS is, who can join, what each tax regime actually allows, how exits now work by corpus band and sector, and two newer parts of the framework that barely appear in general coverage.

What is the National Pension System?

The National Pension System is a market-linked, defined-contribution retirement scheme regulated by PFRDA and administered by the NPS Trust. The Trust's own description calls it simple, voluntary, portable and flexible.

Defined contribution is the phrase doing the work. Money goes in, gets invested across equity, corporate debt, government securities and alternative assets, and the corpus at the end is whatever the markets produced. No pension amount is promised in advance.

That's the structural opposite of the Atal Pension Yojana, where the monthly pension is fixed at enrolment and the central government funds any shortfall. NPS makes no such promise. The subscriber carries the investment risk, in exchange for a corpus with no ceiling on it.

Who can open an NPS account?

Any Indian citizen aged 18 to 85 can open an NPS account. The NPS Trust's eligibility page states a subscriber should be between 18 and 85 as on the date of application, and PFRDA's All Citizen Model page records that entry and exit age was increased to 85.

Two account types exist, and one depends on the other.

	Tier I	Tier II
What it is	The permanent retirement account	A voluntary, withdrawable account
Minimum to open	₹500	₹250
Minimum annual contribution	₹1,000	None
Withdrawals	Restricted, per the exit rules	As and when required
Requires	Nothing	An active Tier I account

PFRDA confirms there's no upper limit on contributions to either tier. Tier II works as a liquid companion account and carries none of Tier I's tax treatment or withdrawal discipline.

What does the new tax regime actually allow?

Under the new default regime, Section 80CCD(2) is the only NPS deduction that survives. The Income Tax Department's page for salaried individuals for AY 2026-27, reviewed 9 July 2026, lists two deductions of note as available under Section 115BAC: Section 24(b) for housing loan interest, and Section 80CCD(2), the employer's contribution, at 14% of salary.

Section	What it covers	Limit	Old regime	New regime
80CCD(1)	Own contribution, shared with 80C and 80CCC	₹1,50,000	Available	Not available
80CCD(1B)	Additional own contribution, exclusive to NPS	₹50,000	Available	Not available
80CCD(2)	Employer's contribution	14% of salary	Available	Available

The ₹50,000 under 80CCD(1B) is the deduction NPS is famous for, and under the new regime it isn't there. Because the new regime is the default, a salaried subscriber who hasn't actively opted for the old one can claim neither it nor the ₹1.5 lakh under 80CCD(1).

What remains is the employer route, which most articles treat as a footnote. For anyone on the default regime it's the entire tax story.

One limit on what we can tell you. The department's page states the 14% figure in the context of Central and State Government employers, and we couldn't isolate an unambiguous primary statement of the rate applying to private-sector employers under the new regime. A wrong percentage there has real consequences, so we cite the 14% the portal gives and leave the private-sector question to a chartered accountant. Tax treatment turns on the regime you file under and on your salary structure, and a CA is the right person to confirm what applies to your return.

How do the NPS exit rules work at 60?

Since the December 2025 amendment, what a subscriber can withdraw depends on corpus size and on whether they are government or non-government. The familiar 60% lump sum and 40% annuity formula now covers just one of several cases.

Accumulated pension wealth	Government sector	Non-government sector
Up to ₹8 lakh	Entire amount as lump sum, or periodic payouts	Same
₹8 lakh to ₹12 lakh	Up to ₹6 lakh lump sum, balance to annuity	Same
Above ₹12 lakh	At least 40% to annuity	At least 20% to annuity

Two figures contradict what most pages publish. The threshold for taking the whole corpus is ₹8 lakh, well above the ₹5 lakh still widely printed. And a non-government subscriber above ₹12 lakh must annuitise only 20%, so up to 80% can come out as a lump sum.

Premature exit works differently. The NPS Trust sets the full-withdrawal limit at ₹5 lakh on the date of initiation; above that, at least 80% of the corpus must buy an annuity, leaving 20% as a lump sum or periodic payouts. It applies before age 60 or superannuation, whichever comes first.

The asymmetry is the interesting part. Leave at 60 with ₹15 lakh as a non-government subscriber and you annuitise 20%. Leave early with the same corpus and you annuitise 80%. The scheme prices patience directly into its own exit rules.

How much can you withdraw before retirement?

Partial withdrawals are capped at 25% of the subscriber's own contributions, available after three years in the scheme. The NPS Trust is precise about the base: that 25% is calculated on the subscriber's own contributions alone, excluding employer contributions and the returns on everything.

Three conditions govern frequency. A maximum of four partial withdrawals is permitted from each individual pension account before age 60, a minimum gap of four years is required between successive withdrawals before 60, and three years after. Permitted purposes cover higher education or marriage of children, a one-time residential property purchase or construction where the subscriber doesn't already own one, medical treatment of self, spouse, children or parents, disability or incapacitation expenses, and settlement of a financial obligation against a lien or charge.

That last purpose appears on almost no explainer we read.

What are NPS Vatsalya and the Unified Pension Scheme?

NPS Vatsalya is a contributory savings scheme for minors, and the Unified Pension Scheme is an assured-payout option within NPS for central government employees. Of twenty-four pages we read, one covers both substantively.

NPS Vatsalya launched on 18 September 2024, announced in the Union Budget for FY 2024-25, with PFRDA issuing Scheme Guidelines in 2025. It's open to Indian citizens below 18 including NRIs and OCIs, with the minor as sole beneficiary and a guardian operating the account. Minimum initial and annual contribution is ₹250, with no maximum. Partial withdrawal is allowed after three years, up to 25% of own contributions, for education, medical treatment or specified disabilities, twice before 18 and twice between 18 and 21. On majority, fresh KYC is mandatory and the account can continue, shift to NPS Tier I, or exit, with full withdrawal permitted where the corpus is ₹8 lakh or less and otherwise 80% lump sum against a minimum 20% annuitised.

The Unified Pension Scheme took effect on 1 April 2025, under PFRDA regulations gazetted 19 March 2025 following a government notification of 24 January 2025. It applies to central government employees only, which is the detail that vanishes when UPS appears inside general NPS coverage. The employee contributes 10% of basic pay plus dearness allowance, the government matches 10%, and an estimated further 8.5% goes to a pool corpus. The assured payout is 50% of the average basic pay over the last twelve months before superannuation, after a minimum 25 years of qualifying service, with a guaranteed floor of ₹10,000 a month after 10 years.

Neither is available to the general subscriber the way most coverage implies. Vatsalya needs a minor. UPS needs central government employment.

What changed in 2026?

PFRDA revised the Investment Management Fee with effect from 1 April 2026, moving the non-government sector to a slab structure that falls as assets under management rise.

Assets under management (₹ crore)	Investment management fee
Up to 25,000	0.12%
Above 25,000 to 50,000	0.08%
Above 50,000 to 1,50,000	0.06%
Above 1,50,000	0.04%

The annual regulatory fee stays at 0.015%, of which 0.0025% of assets passes to the Association of NPS Intermediaries. PFRDA also moved to let scheduled commercial banks independently sponsor pension funds, with eligibility keyed to net worth, market capitalisation and prudential soundness in line with RBI norms.

None of the fifteen commercial pages we read mentions any of it. For where NPS sits among the other schemes, our government schemes overview maps the full set, with EPF covering the workplace-linked route and PPF the universal voluntary one.

What this post deliberately does not cover

This explains how a retirement scheme works. It doesn't recommend NPS, a tier, an asset allocation or a tax regime to anyone, and the tables describe rules rather than argue for a choice among them.

Pension decisions turn on income, existing coverage, employment type, tax regime and time horizon that no article can see. A SEBI-registered investment adviser or a chartered accountant is the right place for advice on a specific situation, and the tax section above is general education rather than a computation of anyone's liability. For a rough projection of your own corpus, lump sum and pension across a range of annuity rates, our NPS calculator runs the numbers with the same caveats.

Four sourcing limits are worth stating. The private-sector employer rate under Section 80CCD(2) in the new regime isn't something we could pin to an unambiguous primary statement, so we cite only the 14% the Income Tax Department's page gives. The December 2025 exit amendment's detail comes from the NPS Trust's current pages rather than the PFRDA regulation itself, whose PDF wouldn't extract. Asset-allocation caps and lifecycle-fund percentages are absent because we couldn't verify them from a primary source in this pass. And returns are absent on purpose: the figures on comparison pages run from 7.6% to 20% with no dates or sources attached, and publishing nothing beats repeating those.

Frequently asked questions

What is the National Pension System? The National Pension System is a market-linked, defined-contribution retirement scheme regulated by PFRDA and administered by the NPS Trust, which describes it as simple, voluntary, portable and flexible. Contributions go into a permanent retirement account, are invested across equity, corporate debt, government securities and alternative assets, and build a corpus whose size depends on market returns rather than on any guarantee. That distinguishes it from a defined-benefit scheme such as the Atal Pension Yojana, where the pension is fixed at enrolment and the central government funds any shortfall. NPS carries no such guarantee, so the subscriber holds the investment risk.

Can you claim NPS deductions under the new tax regime? Only one of them. Per the Income Tax Department's page for salaried individuals for AY 2026-27, reviewed 9 July 2026, the new default regime under Section 115BAC permits just two deductions of note: Section 24(b) for housing loan interest, and Section 80CCD(2), the employer's contribution to NPS, at 14% of salary. Section 80CCD(1), the ₹1.5 lakh deduction shared with Section 80C, and Section 80CCD(1B), the additional ₹50,000 exclusive to NPS, are both unavailable under the new regime. They remain available under the old regime. This is the most consequential fact about NPS taxation, and most comparison pages either state it wrongly or avoid it.

What are the NPS withdrawal rules at 60? They changed in December 2025 and now depend on corpus size and sector. Per the NPS Trust, a subscriber whose accumulated pension wealth is ₹8 lakh or less can withdraw the entire amount as a lump sum or take periodic payouts. Between ₹8 lakh and ₹12 lakh, up to ₹6 lakh can be taken as a lump sum with the balance used to buy an annuity. Above ₹12 lakh, a government-sector subscriber must use at least 40% for an annuity, while a non-government subscriber must use at least 20%. The widely published 60% lump sum and 40% annuity formula now describes only the government sector above ₹12 lakh.

What is the NPS entry age limit? 18 to 85 years. The NPS Trust eligibility page states that a subscriber should be between 18 and 85 years of age as on the date of submission of their application, and PFRDA's All Citizen Model page confirms the same range, recording that entry and exit age was increased to 85. Many bank, insurer and aggregator pages still publish 18 to 70, and at least one large bank publishes 18 to 60 with deferral to 70, so three different answers circulate for the simplest question about the scheme. The 85-year figure is what both the regulator and the administering trust currently state.

How much can you withdraw from NPS before retirement? Up to 25% of your own contributions, and no more than four times. The NPS Trust sets three conditions: the subscriber must have been in NPS for at least three years, the 25% is calculated on the subscriber's own contributions only and excludes employer contributions and investment returns, and a minimum gap of four years is required between successive partial withdrawals before age 60. Permitted purposes include higher education or marriage of children, a one-time residential property purchase or construction where the subscriber does not already own one, medical treatment of self or immediate family, disability expenses, and settlement of a financial obligation against a lien or charge.

What are NPS Vatsalya and the Unified Pension Scheme? Two additions to the NPS framework serving very different groups. NPS Vatsalya, launched on 18 September 2024, is a contributory savings scheme designed exclusively for minors, opened and operated by a guardian with the minor as sole beneficiary, requiring a minimum initial and annual contribution of ₹250. On reaching majority the account can continue, shift to NPS Tier I, or exit, with full withdrawal permitted where the corpus is ₹8 lakh or less. The Unified Pension Scheme took effect on 1 April 2025 under PFRDA regulations gazetted 19 March 2025, and is an option within NPS for central government employees only, offering an assured payout of 50% of the last twelve months' average basic pay after 25 years of qualifying service.

Sources

• NPS Trust, About NPS and Eligibility, pages updated 16 July 2026 (the scheme definition, Tier I and Tier II minimums, and the 18 to 85 age range) npstrust.org.in

• NPS Trust, Normal Exit and Pre-mature Exit, pages updated 16 July 2026 (the Rs 8 lakh and Rs 12 lakh corpus bands, and the 40% government against 20% non-government annuity requirement) npstrust.org.in

• NPS Trust, Partial Withdrawal, page updated 16 July 2026 (three-year eligibility, the 25% own-contributions cap, four withdrawals and the four-year gap) npstrust.org.in

• Pension Fund Regulatory and Development Authority, NPS for All Citizen Models, page dated 23 January 2026 (entry and exit age increased to 85, and no upper limit on contributions) pfrda.org.in

• Income Tax Department, Salaried Individuals for AY 2026-27, reviewed 9 July 2026 (the 80CCD(1), 80CCD(1B) and 80CCD(2) limits, and which deductions survive under Section 115BAC) incometax.gov.in

• Press Information Bureau, Ministry of Finance, PFRDA issues NPS Vatsalya Scheme Guidelines 2025, 13 January 2026 (the 18 September 2024 launch, the Rs 250 minimum, and the options on majority) pib.gov.in

• Press Information Bureau, Operationalisation of the Unified Pension Scheme under NPS, 20 March 2025 (the 19 March 2025 gazette notification and the 1 April 2025 effective date) pib.gov.in

• Press Information Bureau, PFRDA introduces policy reforms to promote sustainable growth of NPS, 1 January 2026 (the Investment Management Fee slabs effective 1 April 2026 and the bank-sponsorship change) pib.gov.in