National Pension System (NPS) Calculator
The National Pension System (NPS) is a government-backed voluntary retirement savings scheme available to all Indian citizens. It was launched to encourage saving for retirement and to reform the pension sector in India. Administered by the PFRDA (Pension Fund Regulatory and Development Authority), NPS is considered one of the most low-cost and tax-efficient retirement tools available today.
How Does the NPS Calculator Work?
Calculating your potential retirement corpus manually can be complex due to compounding interest over long periods. Our NPS Calculator simplifies this by using the following logic:
M = P × ({[1 + i]^n – 1} / i) × (1 + i)
Where users input their contribution amount, frequency, and expected returns. The calculator assumes investments continue until the retirement age of 60.
Key Features & Benefits of NPS
NPS has gained immense popularity for several reasons:
- Exclusive Tax Benefits: Apart from the ₹1.5 Lakh limit under Section 80C, NPS offers an additional deduction of ₹50,000 under Section 80CCD(1B).
- Low Cost: With fund management charges as low as 0.01%, NPS is one of the cheapest investment products globally.
- Flexibility: You can choose your asset allocation (Equity vs Debt) via "Active Choice" or let the "Auto Choice" manage it based on your age.
- Portability: Your PRAN (Permanent Retirement Account Number) remains the same even if you change jobs or locations.
Withdrawal & Exit Rules
NPS is designed for retirement, so it has specific exit rules:
- At Age 60: You can withdraw up to 60% of the corpus as a tax-free lump sum. The remaining 40% must be mandatorily used to purchase an annuity to provide a monthly pension.
- Partial Withdrawal: After 3 years, you can withdraw up to 25% of your own contributions for specific needs like illness, education, or house purchase.
- Premature Exit: If you exit before 60, you must use 80% of the corpus to buy an annuity, making it less liquid in the short term.
Frequently Asked Questions (FAQs)
What is the National Pension System (NPS)?
NPS is a voluntary, defined-contribution retirement savings scheme designed to enable systematic savings during your working life. It is regulated by the PFRDA and is open to all citizens of India between 18 and 70 years.
What are the tax benefits of NPS?
NPS offers a triple tax benefit: 1. Deduction up to ₹1.5 Lakh under Section 80C. 2. Additional deduction of ₹50,000 under Section 80CCD(1B). 3. Employer contributions (for salaried) are deductible up to 10% of salary under Section 80CCD(2) over and above the ₹1.5 Lakh limit.
What is the minimum contribution for NPS?
For an active Tier I account, the minimum contribution is ₹500 per transaction and at least ₹1,000 per financial year. There is no maximum limit on contribution.
Can I withdraw the entire NPS amount at retirement?
No. Upon reaching age 60, you can withdraw a maximum of 60% of your total corpus as a lumpsum. The remaining 40% must be utilized to purchase an annuity plan from an authorized service provider.
Is NPS corpus taxable?
The 60% lump sum withdrawn at maturity is completely tax-free. The amount used to purchase the annuity is also tax-exempt at that time. However, the monthly pension income you receive from the annuity is treated as income and taxed as per your applicable tax slab.
What is the difference between Tier I and Tier II accounts?
Tier I is the mandatory retirement account with lock-in periods and tax benefits. Tier II is a voluntary savings account with no lock-in (you can withdraw anytime) and offers no specific tax benefits.