Retirement Planning in India
Retirement planning is the work of arranging income for the years after you stop earning a salary. It has three parts: working out how much you will need, putting money somewhere until then, and deciding how that money turns back into income afterwards.
Most of what is written about it in India stops at the first part. The third is where the rules bite hardest, and the second changed on 1 April 2026 when a new Income-tax Act replaced the one everybody’s tax planning was built around.
Dhanvantri Capital Services Private Limited, known as Dhanvantree, is an AMFI-registered mutual fund and Specialised Investment Fund distributor, ARN-194216, and a distributor of portfolio management services registered with APMI, APRN10201. We are not registered investment advisers and we are not tax advisers. This page explains how the options work. It does not tell you which to use, and it projects no returns. The choice is yours.
What retirement planning means
Arranging for income after a salary stops. Retirement planning covers the size of the fund you will need, where that money sits while it is being built, the tax treatment at each stage, and the rules that govern taking it out again. It is a sequence of decisions, not a single product.
Two features make it different from other saving. The first is that the time horizon is fixed by your age rather than chosen. The second is that several of the vehicles built for it are one-way: money placed in them cannot be taken back freely, and at the end some of it must be converted into an income stream whether you want that or not.
That second feature is the part people discover late, and it is covered further down.
The steps, in the order they actually come
Six decisions, and the order matters because each one narrows the next. Retirement planning begins with a date, moves through spending and inflation to the size of the fund, and ends with two choices governed by scheme rules: where the money sits, and how it is drawn.
- Fix the date. Everything else is measured from it. A plan that starts at 30 and one that starts at 50 are not the same exercise with different numbers; they have different options available, because several schemes have minimum terms.
- Estimate the spending, not the income. What a retired household costs is the figure that matters. Today’s salary is not a guide, because some costs stop at retirement and others begin.
- Adjust for inflation over the whole period. This is the step most often skipped. Spending has to be inflated to the retirement date, and then kept rising through the retirement years, which may run three decades.
- Work out the fund that supports that spending. This depends on how long the money must last and how much is drawn each year. There is no single agreed withdrawal rate, and this page does not propose one.
- Choose where the money sits. The options in India divide into government schemes with fixed terms, employer-linked schemes, and market-linked investments. They differ in lock-in and in what happens at the end, far more than most comparisons suggest.
- Decide how it comes back out. Annuity, staged withdrawal, or a mixture. For one major scheme this is partly decided for you by regulation.
Steps one to four are arithmetic about your own household, and nobody else can do them for you. Steps five and six are where the rules apply, and the rest of this page is about those. This is a description of how the process works, not a plan prepared for any particular person.
Working out how much you need
Four inputs, and none of them is a market forecast. The size of the fund depends on annual spending in retirement, the number of years it must cover, the rate at which prices rise over that period, and the proportion of the fund drawn each year.
We do not publish a target figure, and we project no returns. Any page that tells you a specific amount has assumed a rate of return and an inflation rate on your behalf. Those assumptions drive the answer entirely, and they are not ours to make for you.
What can be said about the mechanics:
- Longevity risk is the real problem. The fund has to last an unknown number of years, and planning only to an average lifespan risks it running out if you live longer than assumed.
- Inflation compounds twice. Once between now and retirement, raising the spending you must fund, and again through retirement, raising it every year you are drawing.
- The withdrawal rate matters more than the starting fund. The same fund supports very different incomes depending on how fast it is drawn, and the sustainable rate is contested.
The retirement calculator will run the arithmetic on inputs you choose. Change the inflation and return assumptions and watch how far the answer moves. That spread is the honest output, not any single number.
Where retirement money can be kept in India
Five routes, and the differences that matter are lock-in and exit rather than headline rates. Retirement planning in India draws on government schemes with fixed terms, employer-linked schemes, and market-linked investments with no wrapper at all. What separates them is when the money can be reached.
| Option | What it is | Term |
|---|---|---|
| National Pension System, Tier I | The retirement account itself | Exit governed by the PFRDA rules below |
| National Pension System, Tier II | A voluntary account alongside Tier I | Withdrawals on its own terms, without Tier I’s exit rules |
| Employees’ Provident Fund | Payroll scheme; part of the employer’s share funds a pension | Through employment |
| Public Provident Fund | Government scheme open to anyone | 15 financial years, extendable |
| Senior Citizens Savings Scheme | Government scheme for retirees | Fixed term set by the scheme |
| Mutual funds | Market-linked, no retirement wrapper | Depends on the scheme |
Interest rates are deliberately not reproduced here. Small savings rates are reset periodically and a figure printed on a page is out of date within a quarter. The National Savings Institute publishes the current small savings rates, including for the Public Provident Fund and the Senior Citizens Savings Scheme, and EPFO publishes provident fund contribution rates and the declared rate of interest.
The Public Provident Fund takes a minimum of ₹500 and a maximum of ₹1,50,000 in a financial year. It matures after fifteen financial years counted from the end of the year the account was opened, which is later than fifteen years from the date you opened it. After maturity it can be extended in blocks of five years, with or without further deposits. Loans are available from the third to the sixth financial year, and partial withdrawals each year from the seventh, subject to the limits and conditions the scheme rules set.
Mutual funds have no compulsory conversion at the end, and open-ended schemes have no fixed maturity. Lock-in is not uniform, though: equity linked savings schemes carry a statutory lock-in, and close-ended schemes run for a set tenure. The trade is that the value moves with the market, including in the years you intend to draw on it. Exit load, where a scheme charges one, cannot exceed 3% of net asset value under the SEBI (Mutual Funds) Regulations 2026. The categories are set out in types of mutual funds and how a fund’s price is struck in net asset value.
What the tax rules allow from April 2026
The default regime removed most of the deductions retirement saving used to earn. Section 202 of the Income-tax Act 2025 applies unless a person opts out, and it sets aside Chapter VIII. One pension deduction was carved out of that, and most published retirement planning has not caught up.
Section 202 of the Income-tax Act 2025 is headed “New tax regime for individuals, Hindu undivided family and others” and applies unless a person opts out under sub-section (4). Under it, Chapter VIII deductions fall away.
Section 123, which corresponds to the old Section 80C under the new Act and keeps a similar deduction structure, sits in Chapter VIII. So does the pension deduction at Section 124. Section 202(2)(a)(xii) removes Chapter VIII deductions “other than the provisions of section 124(1) and 124(2)”.
| Deduction | Default regime | If you opt out |
|---|---|---|
| Section 123, up to ₹1,50,000 | Not available | Available |
| Section 124(3), own pension contribution up to ₹50,000 | Not available | Available |
| Section 124(1) and 124(2), employer’s pension contribution | Available | Available |
The deduction was not abolished. Section 123 still caps an aggregate deduction where it “does not exceed Rs. 150000”, with the qualifying items moved into Schedule XV — employee contributions to a recognised provident fund, approved superannuation funds, public provident fund accounts in the name of the individual, spouse or child, annuity plans, and notified pension schemes. What changed is who can claim it.
The one that survived got larger. Section 124 allows 14% of salary where the employer is the Central or a State Government and 10% for any other employer. Sub-section (2) then provides that where the individual’s total income is chargeable under Section 202(1), the default regime, the 10% becomes 14%.
| Employer | Standard limit | On the default regime |
|---|---|---|
| Central or State Government | 14% of salary | 14% of salary |
| Any other employer | 10% of salary | 14% of salary |
Salary here includes dearness allowance where the terms of employment provide for it, and excludes other allowances and perquisites. Section 124(5) and 124(10) prevent the same amount being claimed under both sections.
So for a salaried person who has not opted out, their own contributions no longer reduce tax, while a qualifying employer contribution to a pension scheme covered by Section 124 still does, at a higher percentage than before. The deduction attaches to that contribution under the section’s own conditions, not to employer payments into any retirement product. Retirement planning built on the ₹1,50,000 deduction is describing a regime that person may not be on.
Mutual fund taxation depends on what the fund holds, and the headline rates do not cover every scheme. Units of an equity oriented fund — one meeting the 65% test in Section 198(8), computed as an annual average of monthly averages — are charged at 20% on short-term gains under Section 196 and 12.5% on long-term gains above ₹1,25,000 under Section 198, in both cases where securities transaction tax has been paid. Other categories are taxed on their own footing, and the ₹1,25,000 figure is a threshold in the provision rather than a separate allowance for each fund you hold. The detail is on short-term capital gain tax on mutual funds and long-term capital gain tax on mutual funds.
How the money comes back out
Part of an NPS corpus has to buy an annuity, and how much depends on your sector. That is the one step in retirement planning where the rules decide for you rather than leaving it open. The proportions changed in December 2025, and a great deal of published guidance still carries the old ones.
The PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025, notified on 12 December 2025, set different minimums for the two sectors.
| At normal exit | Government sector | Non-government sector |
|---|---|---|
| Minimum into an annuity | 40% | 20% |
| Maximum lump sum, corpus above ₹12 lakh | 60% | 80% |
| Corpus up to ₹8 lakh | May be withdrawn in full | May be withdrawn in full |
| Corpus between ₹8 lakh and ₹12 lakh | Up to ₹6 lakh as a lump sum; the balance to systematic redemption over at least six years, or to an annuity | Same |
The government-sector rule applies on superannuation or retirement. The non-government rule applies on completing fifteen years of subscription, on reaching 60, or on superannuation. Subscribers in government-owned corporates who superannuate follow the government-sector rule.
This remains the decision with the least room to change your mind. An annuity converts a fund into an income at whatever rates are available on the day it is bought, and that cannot be undone afterwards.
The Public Provident Fund ends differently: at maturity the balance can be taken, or the account extended in five-year blocks. Units of an open-ended scheme can generally be sold in whatever amounts and on whatever dates suit, with no compulsory conversion, subject to any lock-in or exit load the scheme carries. That is the main structural difference between holding retirement money inside and outside a pension wrapper, and also where the risk sits, since the value is not fixed.
Where retirement planning usually goes wrong
Four errors, and three of them are about rules rather than arithmetic. Each one appears in retirement planning that was sound when it was written and never revisited after the Income-tax Act 2025 took effect, or that assumed a scheme behaves the way an ordinary savings product does.
Assuming the ₹1,50,000 deduction is working. It is only available to those who opted out of the default regime. Many people have never exercised that option and do not know which regime they are on.
Assuming an employer contribution exists. The Section 124(1) deduction attaches to what the employer actually pays into a pension scheme. If there is no such contribution, the carve-out does nothing.
Treating the annuity as a formality. It is a minimum of 20% or 40% of the NPS corpus depending on your sector, it is irreversible, and the rate is whatever the market offers on the day.
Planning only to an average lifespan. The fund has to cover an unknown number of years, and an average says nothing about how long any one person will need it to last.
The wider filing position is covered on the income tax page. Your own position depends on your income, your employer and which regime you are on; confirm it with a chartered accountant before acting on any of this.
Frequently Asked Questions
Arranging income for the years after a salary stops. It covers estimating what retirement will cost, building a fund, choosing where that fund is held, and deciding how it converts back into income. In India the conversion step is partly governed by regulation rather than left to choice.
Fix a retirement date, estimate retired spending rather than income, adjust it for inflation to and through retirement, work out the fund that supports it, choose where the money sits, and decide how it is drawn. The first four are arithmetic; the last two are governed by scheme rules.
It depends on annual spending in retirement, how many years it must cover, inflation over that period, and how fast the fund is drawn. Any figure quoted without those four inputs has assumed them for you. A calculator you control the assumptions in will show the range rather than a single answer.
Through an annuity bought from the fund, or by drawing on investments. The monthly amount from an annuity depends on the sum used to buy it and the annuity rate available on the purchase date, so the same fund produces different incomes in different years. For NPS, at least 40% of the corpus must go to an annuity at normal exit.
The deduction exists at Section 123 of the Income-tax Act 2025, capped at ₹1,50,000, with qualifying items in Schedule XV. It is a Chapter VIII deduction, so it is not available to anyone on the default regime under Section 202.
The employer’s contribution to the pension scheme, under Section 124(1) and 124(2). Section 202(2)(a)(xii) removes Chapter VIII deductions other than those two. Where income is chargeable under Section 202(1), a non-government employer’s limit is 14% of salary rather than 10%.
It depends on the sector. Under the PFRDA amendment notified in December 2025, a non-government subscriber at normal exit may take up to 80% as a lump sum with at least 20% going to an annuity, while a government subscriber may take up to 60% with at least 40% annuitised. A corpus up to ₹8 lakh may be withdrawn in full.
A minimum of ₹500 and a maximum of ₹1,50,000 in a financial year. The account matures after fifteen financial years counted from the end of the year it was opened, and can then be extended in blocks of five years.
The National Savings Institute publishes small savings rates, which are reset periodically, and EPFO publishes provident fund rates. Rates are not reproduced on this page because a printed rate is out of date within a quarter.
Disclaimer: The views expressed here are of the author and do not reflect those of Dhanvantree. Mutual funds are subject to market risks, please read the scheme documents carefully before investing.