How NPS Calculator Works
National Pension System (NPS) is a market-linked retirement scheme by Government of India. Subscribers contribute to Tier-1 account during working years; corpus invested across equity (max 75%), corporate debt, government bonds. At retirement (age 60), 60% can be withdrawn lump sum (tax-free), 40% MUST buy annuity (provides monthly pension).
NPS Corpus Formula (monthly compounding):
Corpus = P × [{(1+r)^n - 1} / r] × (1+r)
where r = monthly rate, n = total months
Monthly Pension:
Pension = (Annuity Corpus × Annuity Rate) / 12
Example
NPS: Age 30, Retire at 60, ₹5K/month, 10% return, 40% annuity at 6.5%
Working years = 30, Total months = 360
Total Contributions = ₹5K × 360 = ₹18 lakh
Corpus at 60 ≈ ₹1.13 crore
Lump Sum (60%) = ₹67.8 lakh (tax-free)
Annuity Corpus (40%) = ₹45.2 lakh
Monthly Pension = ₹45.2L × 6.5% ÷ 12 ≈ ₹24,483/month
NPS Tax Benefits
- Section 80CCD(1): Employee contribution - up to ₹1.5L (within 80C limit)
- Section 80CCD(1B): Additional ₹50,000 over and above 80C - exclusive NPS benefit
- Section 80CCD(2): Employer contribution up to 10% of salary (govt: 14%) - exempt without limit
- Lump Sum (60%): Tax-free at retirement
- Annuity (40%): Pension is taxable as income at slab rate
NPS vs Other Retirement Plans
| Feature | NPS | EPF | PPF |
|---|
| Returns | 9-12% (variable) | 8.25% (fixed) | 7.10% (fixed) |
| Risk | Market-linked | Govt-backed | Govt-backed |
| Tax Status | EET (60% free) | EEE | EEE |
| Lock-in | Till 60 | Till retirement | 15 years |
| Max/year | No limit | 12% basic | ₹1.5L |
| Extra Tax Benefit | ₹50K (80CCD 1B) | None extra | None extra |
NPS Asset Allocation (Tier 1)
- Auto Choice (Default): Equity allocation reduces with age - aggressive when young, conservative when older
- Active Choice: You decide - Equity (max 75%), Corporate Bonds (max 100%), Govt Bonds (max 100%), Alternative (max 5%)
- LC75 (Aggressive): Up to 75% equity (under 35 years)
- LC50 (Moderate): Up to 50% equity
- LC25 (Conservative): Up to 25% equity
FAQs
Q: Can I withdraw NPS before 60?
Premature exit allowed after 5 years - 80% must buy annuity, 20% lump sum. After 10 years (with employer NPS), better terms. For specific reasons (medical, education, marriage, home buying) partial withdrawal of 25% allowed.
Q: Should I choose annuity higher than 40%?
Generally no - keep at minimum 40%. Annuity returns (~6.5%) are lower than alternatives. Take 60% lump sum and invest in higher-return options.
Q: NPS or PPF - which is better?
NPS gives higher returns (10%+) and extra ₹50K tax benefit. PPF safer (govt-backed) and EEE tax. Best: max out PPF (₹1.5L), then add NPS for extra ₹50K deduction.