6.1 Retirement Products
Key Takeaways
Retirement products in India are regulated by PFRDA (NPS, APY) and the EPFO (EPF, EPS 1995), with small savings like PPF regulated by the Ministry of Finance; each product has a distinct lock-in, tax treatment and withdrawal rule.
NPS Tier-I is locked to age 60 (partial withdrawal now allowed up to 4 times) and earns an extra ₹50,000 deduction under Section 80CCD(1B) over and above the ₹1.5 lakh 80C ceiling, but only in the old tax regime; Tier-II is freely withdrawable and has no 80CCD(1B) benefit.
PPF is a 15-year EEE product at 7.1% p.a. (July–September 2026 quarter) with a ₹1.5 lakh 80C ceiling; EPF earns 8.25% for FY 2025-26 and EPS 1995 provides a lifelong pension on top of the EPF corpus.
Atal Pension Yojana (APY) is open to Indian citizens aged 18-40 who are not income-tax payers; it guarantees a ₹1,000-₹5,000 monthly pension from age 60, with the spouse continuing to receive it and the nominee getting the corpus.
Annuities (immediate or deferred) convert a corpus into a lifelong income stream and are typically bought at NPS maturity; the annuity portion of NPS is taxable at the subscriber's slab rate.
The Retirement-Product Shelf
Quick Answer: Indian retirement products span three regulators — PFRDA (NPS, APY), EPFO under the Employees' Provident Funds & Miscellaneous Provisions Act 1952 (EPF, EPS 1995), and the Ministry of Finance small-savings frame (PPF, NSC). Each product has a distinct lock-in, tax treatment and withdrawal rule; a PAIA must explain these features accurately but must not recommend which product a client should choose — that is core investment advice reserved for the registered investment adviser (Series X-A/X-B).
Retirement products exist to convert current savings into a predictable income stream after working life ends. They sit at the long-tenure end of the financial-planning timeline, which is why most carry a strong lock-in and a tax incentive — the government is willing to forgo revenue today in exchange for the citizen not being a burden on the state at 60.
Regulator map
| Product | Regulator | Statute / Framework |
|---|---|---|
| NPS (Tier-I, Tier-II) | PFRDA | PFRDA Act 2013 |
| Atal Pension Yojana (APY) | PFRDA | APY scheme, 2015 |
| EPF, EPS 1995, EDLI | EPFO / CBT | EPF & MP Act 1952 |
| PPF, NSC, SCSS, KVP, SSY | Ministry of Finance | Small Savings Schemes |
National Pension System (NPS)
NPS is a defined-contribution pension scheme regulated by PFRDA. It has two account types:
- Tier-I — the pension account. Locked to age 60 (the account can now be maintained up to age 85 after the December 2025 PFRDA amendment). Partial withdrawals are allowed up to 4 times before 60 (raised from 3), with a 4-year gap between withdrawals. At normal exit (age 60) under the December 2025 exit amendment: a corpus of up to ₹8 lakh may be taken 100% as a tax-free lump sum; between ₹8 lakh and ₹12 lakh, up to ₹6 lakh may be taken as lump sum; above ₹12 lakh, the lump sum is capped at 80% for non-government subscribers (60% for government subscribers), with the balance of at least 20% going to annuity. The compulsory annuitisation floor was cut from 40% to 20%. Only 60% of the corpus is tax-free under Section 10(12A); any lump sum drawn beyond that is taxed at slab.
- Tier-II — a voluntary, withdrawable savings account with no lock-in. It does not qualify for the 80CCD(1B) extra deduction; only central-government employees with a 3-year lock-in can claim an 80C deduction on Tier-II.
Tax treatment of NPS contributions
| Section | Who | Limit | Regime |
|---|---|---|---|
| 80CCD(1) | Self (salaried 10% / self-employed 20% of Basic+DA / gross income) | Within ₹1.5 lakh 80C ceiling | Old |
| 80CCD(1B) | Self (any NPS subscriber) | Extra ₹50,000 over 80C ceiling | Old only |
| 80CCD(2) | Employer contribution | Up to 14% of Basic+DA (new regime) / 10% (old, private sector) | Old and New |
The extra ₹50,000 under 80CCD(1B) is the headline NPS tax break and the one most tested. It is available for Tier-I only, and only under the old tax regime — a fact many candidates miss because the new default regime has made 80C-style deductions easy to overlook.
Public Provident Fund (PPF)
PPF is a 15-year small-savings scheme run through post offices and designated banks. The rate is reviewed quarterly; for the July–September 2026 quarter (Q2 FY 2026-27) it remains 7.1% p.a. — unchanged since April 2020, and the ninth consecutive quarter with no change across the small-savings basket. Key features:
- Tenure: 15 years, extendable in 5-year blocks.
- Investment limits: ₹500 (minimum) to ₹1,50,000 (maximum) per financial year.
- Tax: EEE — contribution deductible under Section 80C (now Section 123 of the Income Tax Act 2025) within ₹1.5 lakh (old regime only), interest is tax-free, maturity is tax-free.
- Partial withdrawal: allowed from the 7th year; loans allowed from the 3rd to 6th year.
- Lock-in: the 15-year lock is the defining feature — PPF is not a liquidity product.
EPF, EPS 1995 and APY
Employees' Provident Fund (EPF) is a mandatory defined-contribution scheme for establishments covered under the EPF & MP Act 1952. The rate for FY 2025-26 is 8.25% — the third consecutive year at this rate. Employee and employer each contribute 12% of basic wages + dearness allowance; the employer's share is split into EPF (3.67%) and EPS (8.33%, capped on a salary of ₹15,000/month).
Employees' Pension Scheme 1995 (EPS) is the pension leg funded from the employer's 8.33% share. It pays a lifelong pension after age 58 based on pensionable salary × service / 70.
Atal Pension Yojana (APY) is a PFRDA-administered scheme aimed at the unorganised sector, launched 1 June 2015. Eligibility and benefits:
| Feature | Rule |
|---|---|
| Entry age | 18 to 40 years (can join up to the 40th birthday) |
| Income-tax payer | Not eligible to open a new APY account (since 1 Oct 2022) |
| Contribution | Monthly / quarterly / half-yearly auto-debit from a savings bank account |
| Minimum contribution period | 20 years |
| Pension (from age 60) | ₹1,000 / ₹2,000 / ₹3,000 / ₹4,000 / ₹5,000 per month, lifelong |
| Spouse | Receives the same pension after subscriber's death |
| Nominee | Receives the corpus (₹1.7 lakh to ₹8.5 lakh, depending on slab) after both die |
| Tax benefit | Section 80CCD (within the 80C ceiling), old regime |
Annuities
An annuity is a contract with a life insurance company that converts a lump sum into a guaranteed income stream for life or for a fixed term. Two broad types:
- Immediate annuity — payouts start immediately (typically within one year) after the lump sum is paid.
- Deferred annuity — payouts start at a future date; the corpus grows in the meantime.
NPS rules require at least 20% of the maturity corpus (above the ₹12 lakh threshold) to be used to buy an annuity. The annuity income is taxable at the subscriber's slab rate — it is not tax-free — and is a key reason advisors stress understanding the post-60 tax position, not just the pre-60 deduction.
Retirement-product comparison table
| Product | Regulator | Rate (latest declared) | Lock-in | Tax deduction | Maturity / withdrawal tax |
|---|---|---|---|---|---|
| NPS Tier-I | PFRDA | Market-linked (EET mostly) | To age 60 | 80CCD(1), 80CCD(1B) ₹50K, 80CCD(2) | 60% tax-free; 20% lump sum taxed at slab; ≥20% annuity (taxed at slab) |
| NPS Tier-II | PFRDA | Market-linked | None | None for general subscribers | Gains taxed as capital gains |
| PPF | MoF | 7.1% p.a. | 15 years | 80C ₹1.5L (old) | EEE — fully tax-free |
| EPF | EPFO | 8.25% p.a. | Till retirement / specific events | 80C ₹1.5L (old) | EEE if service ≥ 5 yrs; taxable if withdrawn before 5 yrs |
| EPS 1995 | EPFO | Pension formula | Pension from 58 | Employer share | Pension taxed at slab |
| APY | PFRDA | Guaranteed pension | To age 60 | 80CCD (old) | Pension taxed at slab |
| Annuity (life insurer) | IRDAI | Insurer-declared | Per contract | None at purchase (already part of NPS corpus) | Annuity income taxed at slab |
A 35-year-old salaried client wants an additional tax deduction beyond the ₹1.5 lakh Section 80C ceiling and is willing to lock money to age 60. Which product and section give the extra ₹50,000 deduction, and in which tax regime?
NPS Tier-II, Section 80CCD(1B), available in both old and new tax regimes
PPF, Section 80C, available in both old and new tax regimes
APY, Section 80CCD(2), available only in the new tax regime
NPS Tier-I, Section 80CCD(1B), available only in the old tax regime
A 42-year-old Indian citizen, who is not an income-tax payer, wants to open an Atal Pension Yojana account through a savings bank account auto-debit. What is the correct outcome?
He is eligible because APY is open to all Indian citizens and the income-tax payer bar applies only to NRIs.
He is not eligible because APY entry age is 18 to 40 years, so he has crossed the upper age limit.
He is eligible because the income-tax payer bar was withdrawn in 2024 and the age limit is 18 to 60.
He is not eligible because APY requires the subscriber to already be a member of NPS Tier-I.
Sections you finish are checked off in the contents.