The Indian government has launched the New Pension Scheme (NPS) to provide retirement benefits to all citizens, including those employed in the private sector, self-employed individuals, and professionals. It is a simple, low-cost pension scheme that offers capital protection, as it is regulated by the government. However, there is no guarantee on investment returns, as the benefits depend on the amount invested and the growth of the investment until the point of exit. The NPS is a market-linked product and does not provide inflation protection.

The NPS offers liquidity and allows for early withdrawal, although there are currently no guidelines for loans against the NPS. If you retire before the age of 60, you must use 80% of your savings in the Tier-I account to purchase an annuity, and the remaining 20% can be withdrawn as a lump sum. Tax deductions of up to Rs 1.5 lakh can be claimed under Section 80C, and an additional Rs 50,000 under Section 80CCD of the Income Tax Act per financial year. However, the amount received at the end of the NPS is taxable under the current law, unlike EPF and PPF, which are exempt at all stages.

For government employees who joined after January 1, 2004, NPS is mandatory and will replace the general provident fund (GPF) account. The NPS is a defined contribution plan with two parts: Tier-I and Tier-II. Tier-I is a mandatory no-withdrawal pension account that requires a monthly contribution of 10% of the basic salary, with an equal amount deposited by the government. Tier-II is a voluntary withdrawal savings account with no government contribution. Government employees can exit the Tier-I scheme after the age of 60 and must invest 40% of the pension amount to purchase an annuity through a life insurance company. If a member wants to leave NPS before the age of 60, the mandatory annuity will be 80% of the pension amount.

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