APY (Atal Pension Yojana) and NPS (National Pension System) are two distinct pension schemes in India designed to provide you with financial security and retirement benefits. While both aim to address the long-term financial needs of contributors, the APY vs. NPS differ in their structure, features, and applicability. Understanding the nuances of Atal Pension Yojana vs. NPS is crucial for you to plan for a secure and stable retirement.
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†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
Total Investment
Returns Earned
Maturity AmountThe National Pension Scheme (NPS), introduced by the Indian government in 2004, is a voluntary retirement savings plan. Regulated by the Pension Fund Regulatory and Development Authority (PFRDA), it is open to all Indian citizens aged 18 to 70.
At maturity, 60% of the accumulated amount can be withdrawn as a lump sum, while the remaining 40% is paid as annuities for the rest of your life.
Subscribers can choose between Tier 1 and Tier 2 accounts, accessible through a registered Point of Presence or the NPS trust's online portal.
Investments in the NPS include a mix of government securities, fixed income, and equity tailored to the subscriber's risk profile and age.Â
The NPS Tier 1 account comes with a longer lock-in period but provides tax benefits.Â
In contrast, the Tier 2 account is voluntary, with no lock-in period and no associated tax benefits.
The NPS has gained significant popularity over the years as a flexible and tax-efficient retirement savings option.
The Atal Pension Yojana (APY) is a government-backed retirement scheme introduced in 2015 to ensure a guaranteed pension for low-income individuals in the unorganized sector.Â
You can invest in APY from 18 years to 40 years, and the scheme matures when you reach 60. The pension amount, ranging from Rs. 1000 to Rs. 5000, can be chosen based on individual needs.
Contributions are calculated based on age, desired pension, and contribution frequency.
At maturity, the guaranteed pension is paid to both you and your spouse throughout your lifetime.
The APY scheme matures when the individual reaches 60 years of age.
You can choose the pension amount under the APY Scheme as per your need.
Below is a comparative table that shows the key difference between the NPS and APY:
| Factors | Atal Pension Yojana | NPS |
| Joining Age | The entry age for the Atal Pension Yojana is 18 years, and the maximum age is 40 years. | The NPS has an entry age of 18 years, and the maximum is 70 years. |
| Who Can Join | The Indian resident can easily subscribe to the Atal Pension Yojana | The NPS is open to all Indian citizens, whether residents or non-residents |
| Type of Account | APY does not offer different types of account | The NPS has two types of accounts, namely Tier-I and Tier-II |
| Nomination | Available | Available |
| Slab of Pension | Option to choose the fixed pension slab that is to be received each month, for instance, Rs. 1000, Rs. 2,000, Rs. 3,000, Rs. 4,000 and Rs. 5,000 | No fixed pension slabs as the returns are market-linked |
| Guaranteed Returns | The Atal Pension Yojana gives guaranteed pension post-retirement | This does not guarantee any returns as it is linked to capital markets |
| Premature Withdrawal | Premature withdrawal is not possible until the end of the term. Withdrawal of funds is only possible in case of any medical emergency or demise of the subscriber. | Premature withdrawal is possible only within the NPS Tier-II account. However, under the Tier-I account, the premature withdrawal is subject to the fulfilment of terms and conditions. |
| Investment Choice | The Atal Pension Yojana does not offer you the choice to invest in different investment options. | NPS provides you with two options, namely active or auto choice. The NPS subscriber can also choose the fund manager to manage their funds. |
| Account Number | No permanent account number | A Permanent Retirement Account Number (NPS – PRAN) is given to the subscribers. |
| Government Contribution | The government contributes to your APY account (subject to the terms and conditions) | The government does not contribute to the NPS account. |
People also calculate: NPS Pension Calculator
The similarities between Atal Pension Yojana (APY) and NPS are as follows:
Management by PFRDA: APY and NPS are overseen by the Pension Fund Regulatory and Development Authority (PFRDA).
Retirement Wealth Creation: Both APY and NPS are retirement-focused schemes designed to build a corpus for post-retirement financial security.
Fixed Pension After Maturity: Upon maturity of APY and NPS, you receive a consistent pension amount for the rest of your lifetime.
Tax Deductions: Contributions to APY and NPS qualify for deductions under Section 80CCD(1), up to a maximum of Rs. 1.5 lakhs. Additional deduction under Section 80CCD(1B) can be claimed on contributions, with a cap of Rs. 50,000.
Taxable Pension Sum: Pension received from both APY and NPS is subject to taxation as per prevailing income tax laws.
Shared Retirement Wealth Objective: Both schemes share the common goal of creating a retirement wealth corpus for contributors.
Taxation of Received Pension: The pension received under both APY and NPS is taxable in accordance with existing tax regulations.
Lifelong Fixed Pension: At the maturity of both schemes, you are guaranteed a fixed pension amount for the remainder of your life.
Choosing an investment plan depends on personal preferences, financial goals, and risk tolerance. The National Pension System (NPS) offers higher contribution limits and investment flexibility for those aiming to build a retirement fund. In contrast, the Atal Pension Yojana (APY) is suitable for individuals seeking a guaranteed fixed pension post-retirement, ranging from Rs. 1000 to Rs. 5000 monthly.
NPS returns vary based on market conditions, with debt instruments yielding lower returns than equity investments. APY, designed for the unorganized sector, ensures contributors receive a fixed monthly pension, calculated based on the age and contributions of the subscriber.
The choice between Atal Pension Yojana vs. NPS depends on individual financial goals, risk tolerance, and preferences. APY offers a straightforward approach with guaranteed returns, making it suitable for those seeking stability. On the other hand, NPS provides a more dynamic investment avenue with the potential for higher returns but involves market-related risks. Ultimately, you should carefully evaluate your financial needs and investment preferences to determine which option aligns better with your long-term objectives.
NPS (National Pension System)
Deduction of up to 10% of salary (basic + DA) under Section 80CCD(1) within the overall ceiling of Rs. 1.50 lakh under Section 80CCE.
Additional deduction of up to Rs. 50,000 under Section 80CCD(1B).
Employer's contribution is deductible from taxable income under Section 80CCD(2), up to 10% of salary (basic + DA).
Tax-deferred growth on contributions and investment returns.
Lump sum withdrawal of up to 60% of the corpus at retirement, tax-free.
Annuity income from the remaining 40% of the corpus is taxable at applicable rates.
APY (Atal Pension Yojana)
Deduction of up to Rs. 1.50 lakh under Section 80CCD(1).
Additional deduction of up to Rs. 50,000 under Section 80CCD(1B).
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance
plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
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