Many of the characters in Naruto are fighting to make their dreams come true. Some are fighting for vengeance, knowledge or to create a peaceful world. While fighting for these dreams, some characters fail and lose their lives in the process. What fate awaits these characters beyond death? What kind of afterlife exists for Naruto characters, and what rules exist there?
It's important to establish that souls are a real thing in the world of Naruto. Early on in the series, it's revealed that chakra is formed from a combination of physical and spiritual energy. In fact, the Sage of Sixth Paths, Hagoromo Otsutsuki, spread chakra across the planet and taught them how to use it so that they would be able to understand each other on a spiritual level. This is why characters sometimes see each other's memories and read their emotions when they clash during fights, like Naruto and Sasuke. Their spiritual energies are connecting and creating a bond between them. There are a couple of different places that a soul can go to when a character passes on.
Sealed Souls
Sealing a person's soul prevents them from moving on to the afterlife. These souls are trapped by whatever confines the seal has created. Only when the seal is broken will they be able to move onto the afterlife waiting for them. An example of this is the Reaper Death Seal jutsu developed by the Uzumaki clan. This jutsu was used by both the third and fourth Hokages, Hiruzen Sarutobi and Minato Namikaze. Minato used the jutsu to seal part of the Nine-Tailed Fox's chakra into Naruto. Hiruzen also used the jutsu to seal the souls of the first and second Hokages when they were reanimated by Orochimaru.
Sealing a soul is the primary way to counter the Impure World Reincarnation jutsu. This technique summons souls from the afterlife and places them inside a human sacrifice, effectively reviving the dead. The jutsu is unable to work if the target soul has already been sealed, as it does not reside in the afterlife. This was why Kabuto was unable to revive the Hokages at the start of the Fourth Shinobi War -- all four souls had already been sealed until after Orochimaru released them from the Shinigami's stomach.
Purgatory
There is a middle ground between the world of the living and the afterlife. This purgatory is where souls that are incapable of moving on end up. These souls can't move on to the afterlife due to earthly regrets, or they refuse because they are waiting for someone. A number of characters have ended up in this middle plane. Rin, Obito, Kakashi and his father Sakumo have all been seen in purgatory. The appearance of this purgatory also seems to change depending on the person waiting there. When Sakumo met Kakashi in purgatory, they were in a black void with a campfire, but when Obito met Rin, they were in a bright void filled with clouds.
Obito mentions that purgatory and the land of the living are connected through chakra. This connection allowed his spirit to travel back from purgatory and temporally possess Kakashi's body, giving him two Sharingans. The connection between life and purgatory also allowed both of Naruto's parents to communicate with him after their deaths. Minato had sealed part of his and his wife's chakra inside of Naruto, which summoned their spirits when Naruto needed help with the Nine-Tails.
Pure Land
The Pure Land is the final resting place of all souls that have died. Souls that have not been sealed and don't hold any regrets end up in this location. There does not seem to be a moral system dictating who is allowed in the Pure Land. Evil characters, like Akatsuki members Deidara and Kakuzu, and good characters like Chiyo and Haku, were all able to be revived with the Impure World Reincarnation jutsu, which can only retrieve souls from the Pure Land.
It also seems that souls revived with this jutsu don't retain any memories of their time in the Pure Land. The Pure Land has never actually been shown in the series. Because of this and the loss of memories from those that have come back from death, very little is known about the Pure Land. There is no information on what it looks like or what the afterlife is like, but many characters feel it is a place where they can finally be at peace.
