Question 1

What is NPS (National Pension System)?

Accepted Answer

NPS (National Pension System) is a government-sponsored voluntary retirement savings scheme. It allows you to build a corpus through regular contributions that grow at market-linked returns. At retirement (age 60), 60% can be withdrawn tax-free and 40% is used to purchase an annuity for monthly pension.

Question 2

What are the differences between NPS and PPF?

Accepted Answer

NPS offers higher potential returns (8-12% p.a.) with market-linked investments versus PPF's fixed 7.1% p.a. NPS requires 40% annuity purchase at retirement (PPF allows full withdrawal). NPS has a lock-in until age 60, while PPF is 15 years. Both offer Section 80C tax benefits, but NPS also offers an additional ₹50,000 deduction under 80CCD(1B).

Question 3

What are the tax benefits of NPS under Section 80CCD?

Accepted Answer

NPS contributions get tax benefits under two sections: Section 80CCD(1) — up to ₹1.5 Lakh per year as part of the overall 80C limit; Section 80CCD(1B) — an additional ₹50,000 per year deduction over and above 80C. This means total NPS-linked deductions can be up to ₹2 Lakh per year.

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