The Union Budget 2026 increased the income tax deduction limit for National Pension System contributions under Section 80CCD(1B) from Rs 50,000 to Rs 1 lakh, while maintaining the Rs 2 lakh deduction available for employer contributions under 80CCD(2). This effectively raises the total NPS-related deduction available to an individual under the old tax regime to Rs 3 lakh from Rs 2.5 lakh, providing an additional tax saving of Rs 15,000 for those in the 30% tax bracket.
The NPS has emerged as one of India's most popular long-term savings instruments, with over 1.5 crore voluntary subscribers (Tier 1) in addition to government employee enrollments. Equity-heavy NPS funds in the E-tier have delivered average annualised returns of 14.2% over the past 10 years, significantly outperforming EPF and PPF on a pre-tax basis. The increase in deduction limit is expected to attract more middle-class savers to NPS, especially those who have already exhausted the Rs 1.5 lakh 80C limit.
NPS's key advantage is its extremely low cost of fund management, with pension fund manager charges capped at 0.09% of AUM per year — the lowest among all financial products in India. The product's main limitation is the mandatory annuitisation of 40% of the corpus at retirement, which can be a constraint for those seeking full flexibility in using their retirement savings. The partial withdrawal facility for education, marriage or medical emergencies has made the product more attractive for younger investors who value flexibility alongside long-term accumulation.
