NPS: building a pension for self-employed Indians
Most business owners and freelancers have no employer-backed retirement plan. The National Pension System is the government's answer — a professionally managed, low-cost pension fund that also saves tax.
NPS tax benefits: the best deal in 80C
| Deduction | Limit | Regime |
|---|---|---|
| 80CCD(1) — own contribution | Up to 20% of gross income (self-employed) | Old regime only |
| 80CCD(1B) — additional NPS | ₹50,000 extra (over 80C limit) | Old regime only |
| 80CCD(2) — employer contribution | 14% of salary (govt) / 10% (private) | Both regimes |
A self-employed person earning ₹12 lakh can claim:
- ₹1,50,000 via 80C (combined with other investments)
- ₹50,000 additional via 80CCD(1B) = ₹2,00,000 total NPS-related deduction (under old regime)
At retirement: how the corpus is split
At age 60:
- 60% of corpus — withdrawable as lump sum, tax-free
- 40% of corpus — must purchase an annuity (generates monthly pension)
- If total corpus < ₹5 lakh, the entire amount can be withdrawn as lump sum
NPS fund manager choice matters
NPS lets you choose your fund manager and asset allocation. For equity exposure (E class), the maximum allocation is:
- Age < 50: up to 75%
- Age 50–60: auto-reduces from 75% to 50%
Historical NPS equity fund returns (10-year): 12–14% CAGR. Debt component: 7–8%.