National Pension System (NPS)
NPS is India's market-linked, defined contribution pension scheme, recently reformed to allow higher lump sum withdrawals (80%) and introduce the Retirement ...
What new NPS withdrawal rules mean for retirement
The article details recent amendments by PFRDA to the National Pension System (NPS) exit/withdrawal norms. The mandatory annuity portion has been reduced from 40% to 20%, allowing subscribers to withdraw up to 80% of their corpus as a lump sum (up from 60%). Specific rules apply for smaller corpus sizes (up to ₹8 lakh and ₹8-12 lakh). A key point highlighted is that while more can be withdrawn, only 60% remains tax-exempt under Section 10(12A) of the Income Tax Act, meaning the additional 20% is taxable. The article also introduces the new Retirement Income Scheme (RIS), which allows gradual, systematic withdrawals (SLW or SUR) from the non-annuity portion, keeping the balance invested. RIS is compared to Mutual Fund Systematic Withdrawal Plans (MF SWP) regarding flexibility, cost, and tax treatment, offering subscribers more control over their retirement funds.
Syllabus mapping
Mains syllabus topics
Comparative Constitution
Welfare Schemes Vulnerable Sections
International Institutions
Indian Economy Planning Growth
Aptitude Foundational Values
Prelims takeaways
- PFRDA has amended NPS exit/withdrawal norms.
- Mandatory annuity portion reduced from 40% to 20% of the corpus.
- Lump sum withdrawal limit increased from 60% to 80% of the corpus.
- For corpus up to ₹8 lakh, full withdrawal is allowed; for ₹8-12 lakh, up to ₹6 lakh can be withdrawn as lump sum.
- Only 60% of the withdrawn corpus is tax-exempt under Section 10(12A) of the Income Tax Act; the additional 20% is taxable.
- The Retirement Income Scheme (RIS) is a new feature allowing gradual, systematic withdrawals from the non-annuity portion of the NPS corpus.
- RIS offers two payout methods Systematic Lump Sum Withdrawal (SLW) and Systematic Unit Redemption (SUR).
- RIS withdrawals remain within the NPS tax framework (60% exempt, rest taxed), unlike MF SWP withdrawals which are taxed as capital gains.
Elimination traps
- Assuming the entire 80% lump sum withdrawal from NPS is tax-exempt.
- Confusing the features and tax implications of RIS with those of Mutual Fund SWPs.
- Misremembering the exact percentage changes for annuity and lump sum withdrawals.
Static concepts
- Annuity
- Lump sum withdrawal
- Tax exemption
- Capital gains tax
- Systematic Withdrawal Plan (SWP)
- Retirement planning
- Corpus
- Net Asset Value (NAV)
Probable question areas
Question areas
- Which regulatory body governs the National Pension System (NPS)?
Question areas
- What are the new maximum lump sum withdrawal limits for NPS subscribers?
Question areas
- What are the tax implications for the increased lump sum withdrawal from NPS?
Question areas
- What is the Retirement Income Scheme (RIS) in NPS, and what are its key features?
Question areas
- Compare and contrast the tax treatment and flexibility of RIS with Mutual Fund Systematic Withdrawal Plans (SWP).
UPSC concepts in this story
Durable syllabus ideas for revision — not article memory.
Previous year Prelims questions on overlapping themes and topics.
With reference to the Indian economy, "Collateral Borrowing and Lending Obligations" are the instruments of :
Explanation
Correct answer
C. Money market
* Collateral Borrowing and Lending Obligations (CBLO) are instruments of the: C. Money market * CBLO is a money market instrument that facilitates borrowing and lending operations on a collateralized basis. It is used by banks, financial institutions, and other entities to manage their short-term liquidity requirements.
Indian Economy
Financial Markets & Instruments
With reference to ‘National Investment and Infrastructure Fund’, which of the following statements is/are correct?
1. It is an organ of NITI Aayog.
2. It has a corpus of Rs. 4, 00,000 crores at present.
Select the correct answer using the code given below:
Explanation
Correct answer
D. Neither 1 nor 2
Statement 1 is Incorrect: National Investment and Infrastructure Fund (NIIF) is India's first sovereign wealth fund that was set up by the Government of India in February 2015. The objective behind creating this fund was to maximise economic impact mainly through infrastructure investment in commercially viable projects, both Greenfield and Brownfield. Statement 2 is Incorrect: In the Union Budget 2015-16, India's Finance Minister, Arun Jaitley announced the creation of the National Investment and Infrastructure Fund. It was proposed to be established as an Alternative Investment Fund to provide long-term capital for infrastructure projects with an inflow of Rs. 20,000 crore from the Government of India. NIIF was approved in August 2015 by the Department of Economic Affairs. The first meeting of its governing council was held in December 2015 further to which it was registered with SEBI as Category II Alternative Investment Fund. Hence, option D is the correct answer.
Indian Economy
Public Finance & Taxation
Financial Markets & Instruments
With reference to different Committees in India, consider the following details :
| Sl. No. | Committee | Objective | Organization under which it was formed |
|---|---|---|---|
| 1. | R.N. Malhotra Committee | Comprehensive reforms of Insurance sector in India | Insurance Regulatory and Development Authority of India |
| 2. | L.C. Gupta Committee | Preparing a roadmap for the introduction of derivatives trading in India | Securities and Exchange Board of India |
| 3. | Urjit R. Patel Committee | Preparing a roadmap for reforming bank lending to the Housing sector | Reserve Bank of India |
| 4. | Y.H. Malegam Committee | Preparing a roadmap for reforms in Microfinance sector in India | Reserve Bank of India |
In which of the above rows are all the details correctly matched ?
Explanation
Correct answer
D. 2 and 4
Row 1 is Incorrect: The R.N. Malhotra Committee was constituted in 1993 by the Government of India, not the Insurance Regulatory and Development Authority of India (IRDAI). In fact, the IRDAI was established in 1999 as a direct result of this committee's recommendations to reform the insurance sector. Row 2 is Correct: The L.C. Gupta Committee was appointed by the Securities and Exchange Board of India (SEBI) in 1996 to develop a regulatory framework and prepare a roadmap for the introduction of derivatives trading in India. Row 3 is Incorrect: The Urjit R. Patel Committee was constituted in 2013 by the Reserve Bank of India (RBI) to revise and strengthen the Monetary Policy Framework, not for reforming bank lending to the housing sector. It famously recommended the adoption of flexible inflation targeting and the creation of the Monetary Policy Committee (MPC). Row 4 is Correct: The Y.H. Malegam Committee was constituted in 2010 by the Reserve Bank of India (RBI) to study issues and recommend regulations for the Microfinance sector (NBFC-MFIs) following the Andhra Pradesh microfinance crisis. Therefore, only rows 2 and 4 are correctly matched.
Indian Economy
Financial Markets & Instruments
Reserve Bank Of India & Monetary Policy
Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly?
Explanation
Correct answer
D. Participatory Note
Participatory Note (P-Note): This is a financial instrument issued by registered foreign portfolio investors (FPIs) to overseas investors. It allows overseas investors to participate in the Indian stock market indirectly without directly registering with the Securities and Exchange Board of India (SEBI). The FPI holds the underlying Indian securities, and the P-Note represents ownership for the overseas investor. The other options are not used for this purpose: Certificate of Deposit (CD): Issued by banks to raise short-term funds, not related to stock markets. Commercial Paper (CP): Short-term debt instrument issued by companies, not related to foreign investment in stocks. Promissory Note: A written promise to repay a debt, not used in this context of stock market participation.
Indian Economy
Financial Markets & Instruments
External Sector & Capital Flows
Consider the following markets:
1. Government Bond Market
2. Call Money Market
3. Treasury Bill Market
4. Stock Market
How many of the above are included in capital markets?
Explanation
Correct answer
B. Only two
Capital markets are financial markets where long-term securities, such as stocks and bonds, are traded. They provide a platform for raising capital for businesses and governments. On the other hand, Money markets are financial markets where short-term securities such as T-Bill, C-Paper, Cash Management Bills, Ways and Means advances, etc are traded. * Statement 1 is correct- Government bonds are long-term debt securities issued by governments to finance their activities. The government bond market is a part of the capital market as it involves the trading of long-term debt securities. * Statement 2 is incorrect- The call money market is a short-term market where funds are borrowed and lent for very short durations, usually overnight. It deals with short-term funds, and its transactions are not classified as part of the capital market. * Statement 3 is incorrect- Treasury bills are short-term debt instruments issued by governments to finance their short-term cash flow requirements. The treasury bill market, similar to the call money market, deals with short-term instruments and is not considered part of the capital market. * Statement 4 is correct\- The stock market, also known as the equity market or share market, is where shares or stocks of publicly listed companies are bought and sold. The stock market is a part of the capital market as it involves the trading of ownership interests (equity securities) in companies.
Indian Economy
Financial Markets & Instruments
With reference to India, consider the following statements:
1. Retail investors through demat account can invest in ‘Treasury Bills’ and ‘Government of India Debt Bonds’ in primary market.
2. The ‘Negotiated Dealing System-Order Matching’ is a government securities trading platform of the Reserve Bank of India.
3. The ‘Central Depository Services Ltd.’ is jointly promoted by the Reserve Bank of India and the Bombay Stock Exchange.
Which of the statements given below is/are correct?
Explanation
Correct answer
B. 1 and 2
Statement 1 is correct: Retail investors through demat accounts can invest in Treasury Bills and Government of India Debt Bonds in the primary market. Statement 2 is correct: The Negotiated Dealing System-Order Matching is a government securities trading platform of the Reserve Bank of India. Statement 3 is incorrect: Central Depository Services Ltd (CDSL), is the first listed Indian central securities depository based in Mumbai. CDSL is promoted by BSE Ltd. jointly with leading banks such as State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, and Standard Chartered Bank.
Indian Economy
Financial Markets & Instruments
Reserve Bank Of India & Monetary Policy
A bond whose proceeds are used only to finance or refinance a combination of both environmental and social projects is called :
Explanation
Correct answer
C. Sustainability Bond
Sustainability Bonds are fixed-income instruments where the proceeds are exclusively applied to finance or re-finance a combination of both environmental (green) and social projects. Green Bonds are specifically earmarked to raise money exclusively for climate and environmental projects (e.g., renewable energy, pollution prevention, biodiversity conservation). Social Bonds raise funds exclusively for projects that address or mitigate a specific social issue and seek to achieve positive social outcomes (e.g., affordable basic infrastructure, access to essential services, affordable housing). Sovereign Bonds refer to debt securities issued by a national government to finance general government spending and manage national debt. The term refers to the issuer rather than the specific use of proceeds, meaning a standard sovereign bond is not inherently restricted to environmental or social projects. Therefore, the correct option is C.
Indian Economy
Environment & Ecology
Financial Markets & Instruments
Which of the following statements about Crowdfunding is/are correct ?
1. Crowdfunding is solicitation of funds (small amount) from multiple investors through a web-based platform or social networking site for a specific project.
2. Small and Medium Enterprises (SMEs) are able to raise funds at lower cost of capital without undergoing rigorous procedures.
Select the answer using the code given below :
Explanation
Correct answer
C. Both 1 and 2
Statement 1 is Correct: According to the Securities and Exchange Board of India (SEBI), Crowdfunding is officially defined as the solicitation of funds (usually small amounts) from multiple investors through a web-based platform or social networking site for a specific project, business venture, or social cause. It democratizes capital raising by bypassing traditional financial intermediaries and directly connecting entrepreneurs with a large pool of individual backers online. Statement 2 is Correct: Crowdfunding provides an alternative financing route for Small and Medium Enterprises (SMEs) and startups. It allows them to raise funds at a lower cost of capital compared to high-interest traditional loans or giving up massive equity stakes to institutional investors. Furthermore, it enables them to secure funding without undergoing the rigorous, time-consuming procedures, strict collateral requirements, and heavy compliance associated with traditional bank lending or formal stock exchange listings. Since both statements are correct, the correct option is C.
Indian Economy
Financial Markets & Instruments
Digital Financial Infrastructure
With reference of the Indian economy, consider the following statements:
1. ‘Commercial Paper’ is a short-term unsecured promissory note.
2. ‘Certificate of Deposit’ is a long-term instrument issued by the Reserve Bank of India to a corporation.
3. ‘Call Money’ is a short-term finance used for interbank transitions.
4. ‘Zero-Coupon Bonds’ are the interest bearing short-term bonds issued by the Scheduled Commercial Banks to corporations.
Which of the statements given above is/are correct?
Explanation
Correct answer
C. 1 and 3 only
The following statements are correct concerning the Indian economy: - Commercial Paper is a short-term unsecured promissory note. It's a money market instrument issued by companies to raise short-term funds.
- Call Money is a short-term finance used for interbank transactions. Banks borrow or lend money from each other for overnight periods to meet their liquidity requirements. Incorrect statements: - Certificate of Deposit is not issued by the Reserve Bank of India. It's a negotiable instrument issued by commercial banks to depositors for a fixed maturity period at a predetermined interest rate.
- Zero-Coupon Bonds can be long-term or short-term, but they are not issued by Scheduled Commercial Banks. These bonds don't pay periodic interest, but are sold at a discount to their face value. The difference between the purchase price and the maturity value represents the return on investment. Therefore, the correct codes are 1 and 3 only.
Indian Economy
Financial Markets & Instruments
Consider the following statements:
I. India accounts for a very large portion of all equity option contracts traded globally thus exhibiting a great boom.
II. India’s stock market has grown rapidly in the recent past even overtaking Hong Kong’s at some point of time.
III. There is no regulatory body either to warn the small investors about the risks of options trading or to act on unregistered financial advisors in this regard.
Which of the statements given above are correct?
Explanation
Correct answer
A. I and II only
India has seen a massive rise in equity options trading and stock market capitalization, but investor protection is actively overseen by SEBI. ✅ Statement I: Correct India leads globally in equity options trading volume, reflecting a major boom in the derivatives market. ✅ Statement II: Correct In early 2024, India's stock market temporarily overtook Hong Kong’s, becoming the 4th largest by market cap. ❌ Statement III: Incorrect India has a regulatory body—SEBI—which issues warnings and acts against unregistered advisors.
Indian Economy
Current Affairs
Financial Markets & Instruments
Constitutional & Statutory Bodies
Previous year Mains questions mapped to overlapping GS syllabus topics.
"The reform process in the United Nations remains unresolved, because of the delicate imbalance of East and West and entanglement of the USA vs. Russo-Chinese alliance." Examine and critically evaluate the East-West policy confrontations in this regard.
Bilateral, regional and global groupings involving India
Policies of developed/developing countries and Indian diaspora
Important International institutions, agencies and fora
View Mains PYQ
Why is maritime security vital to protect India’s sea trade? Discuss maritime and coastal security challenges and the way forward.
Internal security — external and non-state actors
Border security, organized crime and terrorism
Indian Economy — planning, resources, growth, development, employment
View Mains PYQ
"Energy security constitutes the dominant kingpin of India's foreign policy, and is linked with India's overarching influence in Middle Eastern countries." How would you integrate energy security with India's foreign policy trajectories in the coming years?
Bilateral, regional and global groupings involving India
Important International institutions, agencies and fora
View Mains PYQ
The National Commission for Protection of Child Rights has to address the challenges faced by children in the digital era. Examine the existing policies and suggest measures the Commission can initiate to tackle the issue.
Statutory, regulatory and quasi-judicial bodies
Government policies and interventions
Welfare schemes for vulnerable sections
View Mains PYQ
Mineral resources are fundamental to the country’s economy and these are exploited by mining. Why is mining considered an environmental hazard? Explain the remedial measures required to reduce the environmental hazard due to mining.
Conservation, pollution, degradation and EIA
Indian Economy — planning, resources, growth, development, employment
View Mains PYQ
Vijay is the Deputy Commissioner of a remote district of Himachal Pradesh. For the last two years, he has been in this region. In the month of August, heavy rains lashed the complete state followed by cloudbursts in the upper reaches of the said district. The damage was very heavy in the complete state, especially in the affected district. The complete road network and telecommunication were disrupted and the buildings were damaged extensively. People's houses have been destroyed and they were forced to stay in open. More than 200 people have been killed and about 5000 were badly injured. The Civil Administration under Vijay got activated and started conducting rescue and relief operations. Temporary shelter camps and hospitals were established to provide shelter and medical facilities to the homeless and injured people. Helicopter services were pressed in for evacuating sick and old people from remote areas. Vijay got a message from his hometown in Kerala that his mother was seriously sick. After two days, Vijay received the unfortunate message that his mother has expired. Vijay has no close relative except one elder sister who is a US citizen and has been staying there for the last several years. In the meantime, the situation in the affected district deteriorated further due to resumption of heavy rains after a gap of five days. At the same time, continuous messages were coming on his mobile from his hometown to reach at the earliest for performing the last rites of his mother.
(a) What are the options available with Vijay?
(b) What are the ethical dilemmas being faced by Vijay?
(c) Critically evaluate and examine each of these options identified by Vijay.
(d) Which of the options, do you think, would be most appropriate for Vijay to adopt and why?
Ethics and Human Interface
Aptitude and foundational values for Civil Service
Public/Civil service values and Ethics in Public administration
View Mains PYQ
With reference to the recent amendments to the National Pension System (NPS) exit/withdrawal norms by PFRDA, which of the following statements is correct?
Explanation
The article states that the mandatory annuity portion has come down from 40% to 20%, allowing subscribers to withdraw up to 80% as a lump sum against 60% earlier. For corpus up to ₹8 lakh, the entire amount can be withdrawn. Only 60% of the withdrawn corpus is tax-exempt under Section 10(12A), with the additional 20% being taxable.
Consider the following statements regarding the tax implications of NPS withdrawals under the amended rules: 1. The additional 20% of the corpus that can now be withdrawn as a lump sum is fully tax-exempt. 2. Section 10(12A) of the Income Tax Act exempts 60% of the withdrawn corpus from tax. Which of the statements given above is/are correct?
Explanation
The article explicitly states, 'Section 10(12A) of the Income Tax Act exempts only 60% of withdrawn corpus. The additional 20% PFRDA permits you to withdraw, gets taxed at a slab rate'. Therefore, statement 1 is incorrect, and statement 2 is correct.
Which of the following statements best describes the Retirement Income Scheme (RIS) introduced by PFRDA for NPS subscribers?
Explanation
The article describes RIS as applying to the non-annuity portion of the corpus and letting subscribers 'draw it down gradually instead of taking it in one shot while the balance stays invested and continues to earn market-linked returns'. This aligns with option C. Options A and B contradict the gradual withdrawal nature, and D incorrectly identifies RIS as an annuity product.
The recent amendments to the National Pension System (NPS) withdrawal rules aim to provide greater flexibility to subscribers. Discuss the key changes introduced and critically analyze their implications for retirement planning and financial market dynamics in India.
Introduce the NPS and the PFRDA's role, detail the key changes (annuity reduction, lump sum increase, corpus-based rules, RIS), analyze implications (flexibility, responsibility, tax, market impact), and conclude with a balanced perspective.
Evaluate the significance of the Retirement Income Scheme (RIS) within the National Pension System (NPS) framework. How does it compare with other popular retirement withdrawal mechanisms like Mutual Fund Systematic Withdrawal Plans (SWPs), and what are its potential benefits and challenges for subscribers?
Define RIS and its purpose, compare its features (flexibility, cost, tax) with MF SWPs, discuss benefits (control, cost efficiency) and challenges (fund choice, responsibility) for subscribers.