Tool
NPS Calculator
Project your NPS corpus, tax-free lump sum at 60, monthly pension from annuity, and total tax deduction under 80CCD(1B).
How NPS works
The National Pension System is a market-linked, defined-contribution pension scheme regulated by PFRDA (Pension Fund Regulatory & Development Authority). You invest monthly in a Tier I account and choose your asset allocation across equities (E), corporate bonds (C), government securities (G), and alternative assets (A). At 60, you must use at least 40% of the corpus to buy an annuity (a monthly pension), and you can withdraw up to 60% tax-free as a lump sum.
According to PFRDA's 2023-24 Annual Report, NPS and Atal Pension Yojana together crossed 7.3 crore subscribers, with total AUM of ₹12.76 lakh crore — a testament to the scheme's growing scale and trust.
The formula
where r = annual return ÷ 12, n = months to retirement
Lump Sum (tax-free) = Corpus × (1 − annuity%)
Annuity corpus = Corpus × annuity%
Monthly Pension = Annuity corpus × annuity rate ÷ 12
Corpus = ₹5,000 × [(1.00833)360−1]/0.00833 × 1.00833 ≈ ₹1.13 Cr
Lump sum (60%) = ₹68L (tax-free) · Annuity corpus (40%) = ₹45L
Monthly pension = ₹45L × 6% ÷ 12 = ₹22,500/month
The extra ₹50,000 deduction — Section 80CCD(1B)
This is NPS's biggest selling point. Over and above the ₹1.5L under 80C, you can invest up to ₹50,000 more in NPS Tier I and deduct it under Section 80CCD(1B). At a 30% slab + cess, that's an additional ₹15,600 in tax saved annually. If you've already maxed 80C and are looking for the next deduction, this is arguably the cleanest option available.
Note: Employer NPS contributions under Section 80CCD(2) — up to 14% of basic for central government employees and 10% for private employees — are deductible even under the new tax regime, making NPS one of the few deductions that survives regime switching.
NPS vs EPF vs PPF
EPF wins on employer matching and EEE tax treatment. PPF wins on simplicity, full liquidity at 15 years, and no annuity requirement. NPS wins on the extra ₹50,000 deduction, higher potential returns via equity exposure, and for those who want a structured pension income at retirement. A 2023 study by SEBI-registered investment advisors found that NPS equity funds have delivered superior long-term returns compared to conservative EPF rates — though with higher volatility.
Frequently Asked Questions
What is the minimum NPS contribution?
Tier I (mandatory) requires a minimum of ₹500 per contribution and ₹1,000 per year. In practice, to qualify for the 80CCD(1B) deduction, you need to invest at least ₹50,000 per year. Starting earlier with smaller amounts, then increasing as salary grows, is the optimal approach given the compounding timescale.
Can I exit NPS before age 60?
Premature exit (before 60, after at least 10 years) requires you to use 80% of the corpus to buy an annuity, with only 20% available as a lump sum. This makes early exit quite restrictive — NPS is genuinely designed as a long-term retirement instrument. A few specific conditions (critical illness, disability) allow for partial withdrawals.
How is the annuity taxed?
The 60% lump sum is tax-free at maturity. The monthly pension from the annuity is taxable as income in the year received, at your applicable slab rate. This is similar to how interest income is taxed — you defer the tax, but it's not entirely exempt. The 40% annuity corpus itself is not taxed when deployed to buy the annuity.
Which NPS fund manager should I choose?
PFRDA-approved fund managers include SBI, HDFC, ICICI, Kotak, LIC, Aditya Birla, and UTI. Historically, SBI and HDFC Pension Fund's equity (Scheme E) plans have delivered competitive returns. Costs are minimal (0.09% fund management fee — among the lowest globally). You can switch fund managers once per year and change your allocation anytime.