How the NPS Calculator Works
The National Pension System (NPS) is a government-sponsored retirement savings scheme. You contribute monthly, and the corpus grows with market-linked returns. At retirement, 60% can be withdrawn as a tax-free lump sum, and 40% must be used to purchase an annuity for monthly pension.
The NPS Growth Formula
NPS contributions are invested monthly, so the growth follows the same compounding logic as a SIP:
Monthly rate i = (1 + annual_rate)1/12 − 1
Each month: Corpus = (Previous corpus + Contribution) × (1 + i)
Tax Benefits of NPS
- Section 80CCD(1): Up to 10% of salary (within ₹1.5L 80C limit)
- Section 80CCD(1B): Additional ₹50,000 deduction (over and above 80C)
- Section 80CCD(2): Employer contribution up to 14% of salary (Central Govt) / 10% (others) — no upper cap, over and above ₹1.5L
- At maturity: 60% lump sum is completely tax-free. The 40% annuity is taxable as pension income at your slab rate.
Frequently Asked Questions
How much tax can I save with NPS?
Up to ₹2 lakh: ₹1.5 lakh under 80CCD(1) within the 80C limit, plus ₹50,000 under 80CCD(1B). Employer contributions under 80CCD(2) are additional. These benefits are under the old tax regime. In the new regime, only employer's 80CCD(2) contribution is deductible.
What happens if I exit NPS before 60?
If you exit before 60, you must use at least 80% of the corpus to buy an annuity. Only 20% can be withdrawn as lump sum. After 5 years of subscription, you can exit early, but the annuity requirement is stricter.
NPS vs PPF — which is better?
PPF gives guaranteed 7.1% returns with full tax-free maturity and 15-year lock-in. NPS gives market-linked returns (potentially 10%+) but locks money till 60, and 40% must go to annuity (taxable). NPS is better for higher returns and extra ₹50K tax deduction; PPF is better for guaranteed, fully tax-free returns with shorter lock-in.
Can I change my NPS asset allocation?
Yes. NPS offers Active Choice (you pick the allocation) and Auto Choice (lifecycle-based). In Active Choice, you can allocate across Equity (E), Corporate Bonds (C), Government Securities (G), and Alternative Assets (A). You can change allocation online once per year.
Is the 60% lump sum from NPS tax-free?
Yes. Since Budget 2019, the entire 60% lump sum withdrawal at maturity is completely tax-free. The 40% annuity portion, however, is taxable as pension income at your applicable slab rate when you receive the monthly pension.
