NPS Explained: How to Open a National Pension System Account Online

The National Pension System (NPS) is one of the few retirement products in India that combines market-linked growth with a genuine, extra tax deduction — but the Tier I/Tier II split and the withdrawal rules confuse a lot of first-time investors. Here's how it actually works. Full eligibility and document details are on our NPS service page.

What NPS actually is

NPS is a government-regulated, voluntary retirement savings scheme run under PFRDA (Pension Fund Regulatory and Development Authority). You contribute regularly, your money is invested across equity, corporate bonds and government securities based on your chosen allocation, and at retirement you withdraw part of it and use the rest to buy an annuity for a monthly pension.

Tier I vs Tier II — the difference that matters

• Tier I — the main retirement account. Tax benefits apply here, but withdrawals are restricted until age 60, aside from specific partial-withdrawal rules (education, medical emergencies, home purchase, after a minimum tenure).
• Tier II — a voluntary, flexible savings account with no lock-in. You can withdraw anytime, but there's no separate tax deduction for Tier II contributions.

The tax benefit most people miss

NPS contributions qualify under Section 80C (up to ₹1.5 lakh, shared with other 80C instruments like PPF or ELSS) — but the part worth paying attention to is Section 80CCD(1B), an additional ₹50,000 deduction exclusively for NPS, over and above the 80C limit. That's a real, extra tax-saving lever that PPF, ELSS or insurance premiums don't give you.

Step-by-step: open an NPS account online

1. Go to the official eNPS portal (enps.nsdl.com).
2. Register using Aadhaar-based OTP e-KYC, or your PAN with bank account verification.
3. Choose Tier I (mandatory to start) and optionally add Tier II.
4. Select a Pension Fund Manager and your allocation — Active choice (you set the equity/debt split) or Auto choice (age-based, adjusted automatically).
5. Make your first contribution online and receive your PRAN (Permanent Retirement Account Number).

What happens at retirement

At age 60, you can withdraw up to 60% of your NPS corpus as a tax-free lump sum. The remaining 40% must go toward buying an annuity, which then pays you a regular pension. This split is fixed by regulation, not optional.