How NPS works
The National Pension System is a market-linked retirement scheme regulated by PFRDA. You contribute regularly to a Tier-I account, the money is invested in equity, corporate bonds and government securities by a pension fund manager, and at age 60 you withdraw part of the corpus as a lump sum and use the rest to buy an annuity that pays a monthly pension for life. This calculator projects the corpus, the lumpsum/annuity split and the expected pension.
Exit rules at 60
- At least 40% of the corpus must be used to buy an annuity from an empanelled life insurer; up to 60% may be withdrawn as a lump sum, fully tax-free.
- If the corpus is ₹5 lakh or less, the entire amount can be withdrawn.
- Exit can be deferred up to age 75, with contributions continuing if desired.
- The annuity rate (typically 6–7%) depends on the option chosen — with or without return of purchase price, single or joint life.
Worked example
Age 30, ₹5,000 per month until 60 at 10%: contributions ₹18,00,000; corpus about ₹1.14 crore. Withdraw 60% (₹68.4 lakh) tax-free and use 40% (₹45.6 lakh) to buy an annuity at 6.5% → monthly pension ≈ ₹24,700. Choosing a 60% annuity would raise the pension to about ₹37,000 while reducing the lumpsum to ₹45.6 lakh. A 10% yearly step-up in contribution more than doubles the corpus.
Tax benefits
- Section 80CCD(1): own contribution within the ₹1.5 lakh 80C limit (old regime).
- Section 80CCD(1B): additional ₹50,000 exclusively for NPS (old regime).
- Section 80CCD(2): employer contribution up to 14% of basic + DA (10% for private employers under the old regime) — available in both regimes and not counted in the 80C cap.
- Lumpsum withdrawal up to 60% is exempt; pension from annuity is taxable as income.
Investment choices
Active choice allows up to 75% equity until age 50 (tapering thereafter); Auto choice shifts from equity to debt with age. Long-term returns of 9–11% have been typical for balanced allocations, but they are not guaranteed. Fund management charges are among the lowest of any retirement product.
Frequently Asked Questions
How much of the NPS corpus can I withdraw at 60?
Up to 60% as a tax-free lump sum. At least 40% must buy an annuity. If the corpus is ₹5 lakh or less you can withdraw everything.
Is the NPS pension taxable?
Yes, the annuity income is taxed as salary/other income at slab rates. The lump sum withdrawal is tax-free.
What return should I assume for NPS?
8–10% for a balanced mix; up to 11–12% for equity-heavy allocations in good markets. Use a conservative figure for planning.
Can I get an NPS tax benefit in the new regime?
Only the employer contribution under 80CCD(2) (up to 14% of basic). The 80CCD(1) and 80CCD(1B) deductions are available only in the old regime.
Disclaimer: This tool is for general information and estimation only. Tax rates and rules change — verify with official sources or a professional before acting. Read full disclaimer.