NPS Calculator

What the National Pension System offers

The National Pension System (NPS) is a low-cost, government-regulated retirement scheme that builds a market-linked corpus over your working life. You contribute regularly to a Tier I account, the money is invested across equity, corporate bonds and government securities, and it compounds until you turn 60. Because charges are among the lowest of any Indian investment product, more of your return stays invested.

At retirement, the corpus splits in a fixed way: up to 60% can be withdrawn tax-free as a lump sum, while at least 40% must buy an annuity that pays a lifelong monthly pension. This mandatory annuitisation is what makes NPS a pension product rather than a plain mutual fund.

The tax advantage

NPS carries a tax break no other instrument matches. Alongside the ₹1.5 lakh limit under Section 80C, you can claim an additional ₹50,000 under Section 80CCD(1B). Salaried employees can go further: employer contributions of up to 14% of basic salary are deductible under 80CCD(2) and, from FY 2024-25, this higher limit applies to private employees under the New regime too.

• The 60% lump sum at 60 is fully tax-free.
• The monthly pension is taxed as income at your slab rate.
• If your corpus is ₹5 lakh or less at 60, you can withdraw all of it without buying an annuity.

Choosing how it is invested

You control the risk. Under Active Choice you set your own split, with equity capped at 75%; under Auto Choice the equity share tapers automatically as you age. You also pick from registered pension fund managers and can switch if one underperforms.

• Young investors benefit from a higher equity allocation and decades of compounding.
• A ₹10,000 monthly contribution from age 30 to 60 at 10% can build a corpus near ₹2.2 crore.
• Premature exit before 60 is restrictive: 80% must be annuitised and only 20% withdrawn.

The trade-off is a long lock-in and a modest annuity rate — often around 6% — that may lag inflation over a long retirement. Used deliberately, though, NPS pairs a rare tax deduction with disciplined, low-cost, equity-linked saving, making it a strong complement to EPF and PPF in a retirement plan.