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APY vs. NPS: Detailed Differences Between NPS & APY

Retirement is that phase of your life when you don’t work actively and as such, you don’t have a regular source of income. While your source of income dries up, you still face basic lifestyle expenses and medical expenses in your old age. To live a financially independent life, you need to create a retirement corpus during your active working life. This corpus would then help in meeting your expenses post-retirement. Moreover, if you plan properly, you can also leave behind a legacy for your children.

There are different types of investment avenues when it comes to retirement planning. You can choose any avenue and invest in retirement. Two such avenues, which have been introduced by the Government of India, are the NPS scheme and the APY scheme. Both these schemes have been launched by the Government to provide individuals with a dedicated investment avenue for retirement planning. Let’s understand what these avenues are and their comparative similarities and differences –

What is the NPS scheme?

The National Pension System (NPS) scheme is a retirement planning scheme which offers market-linked returns. You can invest in the scheme till 60 years of age. There are four types of funds and two investment strategies offered by the NPS scheme. You can either choose to invest in any of the four available funds under the Active choice of investment or choose the Auto choice strategy and the risk profile for automated allocation of your investments in the different funds. The return of the scheme depends on the financial market. On maturity, you can withdraw 60% of the accumulated corpus in a lump sum and the remaining 40% of the corpus would then pay you annuities throughout your life.

What is the APY scheme?

The Atal Pension Yojana (APY) scheme is also a retirement oriented scheme which was launched by the Government. The scheme aimed to provide guaranteed pensions to low-income group individuals in the unorganized sector. You can also invest in the scheme until 40 years of age and the scheme matures when you attain 60 years of age. There are five options of pension amounts which are guaranteed under the scheme. These amounts range from INR 1000 to INR 5000. When you invest in the scheme, you choose the pension amount which you need. Based on your age, the pension amount is chosen and the frequency of contribution, the amount which you need to contribute towards the scheme is calculated. On maturity, the guaranteed pension amount is paid throughout your and your spouse’s lifetime.

APY vs NPS – the similarities 

The APY and the NPS scheme have many similarities. These include the following –

  • Both the schemes are retirement oriented schemes which help you create a retirement corpus
  • Both the schemes are managed by the Pension Fund Regulatory and Development Authority (PFRDA)
  • Once the schemes mature, you get a fixed amount of pension throughout your lifetime under both NPS and APY
  • Contribution to both the schemes qualifies for deduction under Section 80 CCD (1) up to a maximum of INR 1.5 lakhs. Moreover, you can claim an additional deduction under Section 80 CCD (1B) on contributions of up to INR 50,000 to both the schemes.
  • The pension amount received under both the schemes is taxable in your hands at your income tax slab rates.

APY vs NPS – the differences 

Though the above-mentioned points show that both these schemes have many similarities, the fact is that these schemes are very different from each other. The main differences between the NPS APY schemes can be highlighted in the following points –

  1. Eligibility criteria 
    The first difference between the schemes can be seen in the eligibility criteria to join the scheme. To subscribe to the APY scheme, you should be aged between 18 years and 40 years. Moreover, only resident Indians are allowed to apply for the scheme. For the NPS scheme, however, the age limit is 18 years to 60 years and both Indian residents and NRIs can apply for the scheme.

  2. Contribution amount
    Under the APY scheme, the amount of contribution depends on the age at which you opt for the scheme, the guaranteed pension amount that you choose and the frequency of contributing to the scheme. The contribution starts at INR 42/month and can go up to INR 7778/half-year which is the maximum amount of contribution.Under the NPS scheme, the contribution depends on the account selected. If you choose only Tier I Account, the minimum contribution is INR 500 to open the account. Thereafter, a minimum contribution of INR 1000 per year would be required to keep the account active wherein the minimum amount per contribution should be INR 500. If you also choose Tier II Account, a minimum amount of INR 1000 would be required to open the account. Thereafter, a minimum contribution of INR 250 is required to keep the account active. There is no limit on the maximum amount which you can contribute towards the scheme.

  3. Amount of pension payable 
    The amount of pension payable under the APY scheme is fixed beforehand and based on the pension chosen, the contribution is fixed. The pension can be chosen to be INR 1000, INR 2000, INR 3000, INR 4000 or INR 5000. The scheme is, therefore, also known as a defined pension scheme.Under the NPS scheme, the pension amount depends on the accumulated corpus available on the maturity of the scheme and the pension option selected. The pension is, therefore, not guaranteed, and depends on the amount that you have invested. The NPS scheme is, therefore, called the defined contribution scheme.

  4. Tax benefits
    Though both the schemes have similar tax benefits, NPS has an edge over APY as it allows an additional tax saving for salaried employees. If the employers of such employees contribute towards the NPS scheme up to 10% of the employee’s basic salary including dearness allowance, such contribution is also allowed as a deduction under Section 80 CCD (2). This deduction is allowed over and above the deductions available under Sections 80 CCD (1) and 80 CCD (1B). Moreover, if you opt for the new tax regime where deductions and exemptions are not allowed, the employer’s contribution to the NPS scheme would still be allowed under Section 80 CCD (2).The APY scheme does not promise this additional benefit. The tax benefit is available only under Sections 80 CCD (1) and 80 CCD (1B).

  5. Available pension options
    Under the APY scheme, you get the guaranteed pension throughout your lifetime. Moreover, on your death, if your spouse is alive, the pension is paid to the spouse for his/her lifetime. Thus, the APY scheme promises joint life annuities.Under the NPS scheme, there are seven annuity options to choose from. You can get lifetime annuities only on your life or you can also choose joint life annuities. The annuity amount can also be increased annually by choosing an increasing annuity option. Moreover, under some options, the purchase price is also refunded back on your or your spouse’s death. 

  6. Types of accounts
    Under the APY scheme, only one account is allowed per investor while under the NPS scheme, there are two types of accounts – Tier I Account and Tier II Account. While Tier I Account is compulsory, Tier II Account is optional.

  7. Premature withdrawals
    The APY scheme does not allow partial withdrawals before the maturity date. The accumulated balance in the account is allowed to be withdrawn prematurely only in case of death of the investor or terminal illness. In these cases too, the whole account is withdrawn and the scheme is closed. However, in case of death of the investor, the spouse might choose to continue the account till maturity and then receive the guaranteed pension.The NPS scheme allows for premature withdrawals. Withdrawals from Tier II Account can be done anytime without any restrictions. However, under Tier I Account, there are restrictions. Withdrawals from Tier I Account are allowed from the third year of investment and only for specific cases like marriage, medical emergencies, buying a house, etc. Partial withdrawals from Tier I Account are allowed for up to 25% of the balance in the account. If you close the scheme prematurely, 20% of the accumulated corpus can be withdrawn in a lump sum. The remaining 80% would have to be used for receiving annuities. 

  8. The asset allocation of invested funds
    The funds invested in the APY scheme are invested in a specified manner only in Government securities. On the other hand, the funds invested in the NPS scheme are invested in the market. There are four types of investment funds called Asset Class A, C, E and G and these funds invest in alternate investment funds, fixed income instruments, equity stocks and Government securities respectively. You can, therefore, choose to invest in equity and debt through NPS funds to get attractive returns on your investments and to create a good corpus.

  9. Benefits on maturity
    Once the APY scheme matures, the pension amount guaranteed under the scheme would be paid. Under the NPS scheme, however, 60% of the accumulated corpus can be withdrawn in a lump sum and pension is paid from the remaining 40% of the corpus. You also have the benefit of using the entire corpus to receive pensions.

  10. Contribution by the Government
    When the APY scheme was launched, the Government promised to contribute 50% of the investor’s contribution, subject to a maximum of INR 1000, to the scheme. This contribution was allowed for non-tax paying individuals who had no other Statutory Social Security Scheme. The contribution was promised for subscribers who joined the scheme from 1st June 2015 to 31st December 2015 for a period of 5 years. The objective of the contribution was to create a higher retirement corpus for low-income group individuals.Under the NPS scheme, the Government’s contribution is allowed only for Government employees. For such individuals, the Government contributes 10% of the employee’s salary towards the NPS scheme. For other individuals, the contribution is not available. So, the NPS and the APY schemes are quite different and the afore-mentioned points show the difference. For a quick glance at the major differences between the two schemes, is a comparative table – 
Points of differenceNPS schemeAPY scheme 
Entry age 18 years to 60 years18 years to 40 years
Who can subscribeIndian residents as well as NRIsOnly Indian residents
Pension payableDepends on the contributions and the growth achieved from market-linked investments A guaranteed amount of INR 1000 to INR 5000 that you choose when joining the scheme
Tax benefitsInvestments are allowed as a deduction under Section 80CCD (1), 80CCD (1B) and 80 CCD (2). Pensions paid are taxable in the hands of the investor Investments are allowed as a deduction under Section 80CCD (1) and 80CCD (1B). Pensions paid are taxable in the hands of the investor
Premature withdrawalsPartial withdrawals allowed from the third year of investment from Tier I Account. From the Tier II Account, however, withdrawals can be done anytime. Premature exit from the scheme can also be done in which case 20% of the account balance is paid in a lump sum and the remaining 80% is used to pay annuities.Not allowed except in case of terminal illness or death of the investor. In such cases too, the entire account balance is paid and the scheme is terminated.
Type of accountTier I and Tier II AccountOnly one APY account
InvestmentsAny amount can be invested in the scheme as long as it meets the minimum contribution criterion.The investment would depend on age at entry, pension amount selected and the mode of investment. The investment amount is fixed throughout the investment tenure
Government contributionOnly in the case of Government employees @10% of the employee’s salary + dearness allowance Only for subscribers who do not have a taxable income or subscription to any other social welfare scheme and who have joined the scheme between 1st June 2015 and 31st December 2015. The contribution is done @50% of the investor’s contribution or INR 1000 whichever is lower
Nomination facilityAvailable. Anyone can be the nomineeAvailable. The nominee should be someone other than the spouse 
Pension payment optionsSeven pension options to choose fromJoint life pension if the spouse survives the investor 
Maturity benefit60% in a lump sum and 40% in annuity paymentsA fixed amount of annuity as chosen by the investor 
Fund portfolioDifferent types of asset classes are available for investmentsInvestments are done only in specified Government securities which pay a fixed rate of interest 

So, know the difference between the two schemes and then choose one or both for creating a retirement corpus for yourself.


Yes, if you fulfil the eligibility conditions of both NPS and APY schemes, you can choose to invest in both the schemes.

No, different PRAN numbers are issued for investment in NPS and APY schemes. Thus, you would have two different PRAN numbers if you invest in both the schemes.

One individual can open only one account in his/her name under the APY and NPS schemes. However, under the NPS scheme, the individual can get two types of accounts called Tier I Account and Tier II Account.

Yes, if no contribution is made in any year in the APY or NPS schemes, there would be a penalty. The penalty in APY scheme is INR 1 to INR 12 per month of default depending on the contribution amount. In the case of the NPS scheme, the penalty for not paying the minimum contribution is INR 100.

Investments in the NPS scheme can be done in one lump sum. However, for APY scheme, you would have to invest monthly, quarterly or half-yearly. There is no option to invest in a lump sum.