Min ₹500/month. No upper limit. Employer contribution entered separately in tax section.
NPS returns are market-linked — not guaranteed. Equity (E) fund historically ~10–12%. Conservative: use 8–9%.
Minimum 40% must be used to buy annuity (mandatory). Remaining 60% is tax-free lump sum.
What is NPS and How Does It Work?
NPS (National Pension System) is a government-backed voluntary retirement scheme open to all Indian citizens aged 18–70. It invests in a mix of equity, corporate bonds, and government securities based on your chosen allocation.
At retirement (age 60): Minimum 40% of corpus must be used to purchase an annuity (monthly pension). Up to 60% can be withdrawn as a tax-free lump sum. The annuity income is taxable as salary income.
Three tax benefits: 80CCD(1) — up to 10% of salary within the overall ₹1.5L 80C limit. 80CCD(1B) — additional ₹50,000 deduction exclusively for NPS, over and above 80C. 80CCD(2) — employer NPS contribution up to 10% of salary, fully deductible with no upper limit.
NPS vs PPF: NPS is higher-return but market-linked. PPF is guaranteed 7.1% but tax-free at all stages. NPS annuity income is taxable; PPF maturity is fully tax-free. Both serve different roles in a retirement portfolio.
How NPS Corpus is Calculated
Where P = monthly contribution, r = monthly return rate (annual ÷ 12), n = months to retirement.
Example — ₹5,000/month, age 30, 10% return
Years to retirement: 30. Monthly rate: 0.833%. Corpus = ₹1.13 crore. Lump sum (60%): ₹67.8 lakh tax-free. Annuity (40%): ₹45.2 lakh → ~₹22,600/month pension at 6% annuity rate.
Annuity rate disclaimer
Monthly pension is estimated at 6% annuity rate — actual annuity rates vary by provider (LIC, SBI Life, HDFC Life etc.) and are set at time of purchase. Rates shown are indicative only.
Example Calculation
Frequently Asked Questions
NPS offers three layers of tax deduction: 80CCD(1) allows deduction up to 10% of salary within the ₹1.5L 80C limit. 80CCD(1B) gives an additional ₹50,000 deduction exclusively for NPS — over and above 80C. 80CCD(2) allows deduction for employer NPS contribution up to 10% of salary with no upper cap. Combined, these can save ₹15,600–₹46,800/year in tax depending on your slab.
It depends on your corpus and the annuity rate at retirement. At 6% annuity rate, a ₹1 crore corpus with 40% annuity purchase gives approximately ₹20,000/month pension. Actual annuity rates are set by IRDAI-registered annuity providers at time of retirement and vary by age, provider, and annuity type chosen.
Partially. At maturity, up to 60% of NPS corpus withdrawn as lump sum is completely tax-free. The remaining 40% (minimum) used to purchase an annuity generates monthly pension income, which is taxable as salary income at your applicable slab rate. Partial withdrawals before retirement are allowed under specific conditions with tax exemptions.
Both serve different purposes. PPF: guaranteed 7.1% return, completely tax-free at all stages, 15-year lock-in, max ₹1.5L/year. NPS: market-linked returns (historically 10–12% for equity funds), additional ₹50K tax deduction under 80CCD(1B), but annuity income is taxable and minimum 40% must buy annuity. Use PPF for guaranteed debt-like returns; NPS for higher long-term growth and extra tax saving.
For Tier I account (the retirement account with tax benefits): minimum ₹500 per contribution and ₹1,000 per year. There is no maximum limit. For Tier II account (voluntary savings, no tax benefit, fully liquid): minimum ₹250 per contribution. NPS Tier I has a lock-in until age 60 with limited withdrawal options.
Related Calculators
Disclaimer: Results are for informational and educational purposes only — not financial, tax, or legal advice. Tax slabs, rates (EPF, PPF, home loan), and rules shown are based on data available in 2025 and may change. Always verify with a qualified professional or official government sources before making financial decisions.