Evaluate & compare your National Pension System (NPS) investment corpus against various investment options, considering tax implications.
The National Pension System (NPS) is a government-introduced scheme for retirement planning. It involves contributing to a pension fund during employment to build a retirement corpus.
NPS offers tax benefits, with an extra ₹50,000 deduction besides ₹1.50 lakh under section 80C. At retirement after age 60 the withdrawals are tax-free. 60% can be withdrawn as a lump sum, while the rest must be invested in annuity plans.
Use our NPS calculator to make informed decisions about NPS investments.
Corporate Bonds: 8-9%
Government Bonds: 8-9%
Alternative Investment Funds:(-8%) to +8% (optional but not recommended)
(All the returns shown above are average historical returns)
Up to ₹1.50 lakh (considered with Section 80C deductions)
Additional ₹50,000 under Section 80CCD(1B)
Employer contributions up to 10% of basic salary (14% for central government employees) or ₹7.5 lakh
This NPS calculator is provided for informational purposes and to facilitate calculations. It is not meant to serve as tax advice.
Please be aware that the results of this calculator may not reflect actual returns and are provided for illustrative purposes only.
For specific tax-related questions, please consult with your advisor.
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The NPS scheme is open to any Indian citizen aged between 18 and 70 years, including Non-Resident Indians (NRIs) and overseas Indians, as long as they are legally capable of entering into a contract according to the Indian Contract Act. Persons of Indian Origin (PIOs) and Hindu Undivided Families (HUFs) are not permitted to participate in the NPS.
To avail of tax benefits, it's important to invest in the tier 1 account of the NPS. Here's a breakdown of the tax advantages:
Deduction of up to ₹1.50 Lakh: You can claim a deduction of up to ₹1.50 lakh, which falls under Section 80C. This deduction takes into account your investments made in NPS.
Additional Deduction of ₹50,000: For NPS investments, an extra deduction of up to ₹50,000 can be claimed under Section 80CCD(1B). It's worth noting that these deductions are available exclusively under the old regime.
Employer Contributions: If your employer contributes to your NPS, this contribution can be claimed as a deduction. This deduction is permissible up to 10% of your basic salary (14% in the case of a central government employer), with a maximum limit of ₹7.5 lakh.
Moreover, when you retire and withdraw the lump sum portion of your corpus, it's tax-free. However, any annuity or pension you receive will be subject to taxation as salary income, based on the prevailing tax rates at the time of receiving the pension. This ensures that your retirement benefits are efficiently managed from a tax perspective.
NPS operates as a pension product, requiring you to maintain your investment until your retirement. Upon reaching the age of 60, it is mandatory to allocate a minimum of 40% of your corpus to secure an annuity income through a Pension Fund Regulatory and Development Authority (PFRDA)-listed insurance company. Furthermore, you have the flexibility to withdraw 60% of the corpus without incurring any tax implications.
In cases where the total corpus in your NPS account amounts to ₹5 lakh or less, subscribers have the option to opt for complete (100%) withdrawal.
Yes, you have the option to defer withdrawing the lump sum amount in your NPS until you reach the age of 70.
Should you decide to exit the scheme before reaching 60 years of age, you can withdraw only 25% of the contributions made by you (excluding employer contribution) after completing at least 3 years in the scheme. This is only for specific purposes like higher education, marriage of children, purchasing a house or treatment of a critical illness. This is allowed 3 times before you reach 60 years of age, after which you can withdraw as per the normal process.
In the unfortunate event that the subscriber passes away before reaching the age of 60, the entire accumulated wealth will be disbursed to the nominee or legal heir of the subscriber.
If you've been enrolled in the NPS for at least 5 years, you're eligible for a premature exit. However, you're required to allocate a minimum of 80% of your accumulated corpus toward purchasing an annuity (pension) plan. But, if your total NPS balance is ₹2.5 lakh or less, you can opt for a full 100% withdrawal, giving you complete flexibility.
The expected rate of return on investments in the NPS is not fixed, as NPS operates as a market-linked investment. NPS provides the flexibility to allocate your investments across equity (up to 75% maximum), corporate bonds, government securities, and alternative investment funds, each offering distinct potential returns and associated risks. Historically, the various asset classes within NPS have generated the following historical returns:
NPS Tier I account is mandatory, but subscribers have the option to open a Tier II account. Tier I serves as the individual pension account, while Tier II functions as a voluntary savings facility supplementary to the Tier I account. While Tier I accounts offer tax benefits, they have restrictions on withdrawal based on specific conditions. In contrast, Tier II accounts lack tax benefits but don't come with withdrawal restrictions.
The key distinction lies in the withdrawal of invested funds. Complete withdrawal from the Tier-I account isn't allowed until retirement, and even then, there are limitations. However, subscribers can withdraw the entire sum from the Tier-II account.
The below guidelines ensure the required minimum contributions for both Tier I and Tier II accounts in the NPS.
Initial contribution during registration: At least ₹500
Minimum amount for each contribution: ₹500
Minimum total contributions per financial year: ₹1,000
Minimum contributions per financial year: 1
Flexibility in contribution frequency: Apart from the mandatory minimum contribution, the subscriber can choose their contribution frequency throughout the year according to their preference
Initial contribution during registration: At least ₹1,000
Minimum amount for each subsequent contribution: ₹250
No mandatory minimum balance required
Neglecting the minimum contribution will lead to the freezing of your account. To reactivate the account, you must visit a Point of Presence Service Provider (POP-SP), pay the required minimum amount, and a penalty of ₹100.
Each NPS subscriber receives a card containing a 12-digit unique identifier known as the Permanent Retirement Account Number (PRAN).
No, it is not possible to open multiple NPS accounts. The portability of NPS across sectors and regions eliminates the need for a second account.
Pension Fund Managers registered with PFRDA manage the funds invested in NPS.
Presently, there are eight pension fund managers: ICICI Prudential Pension Fund, LIC Pension Fund, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund, SBI Pension Fund, UTI Retirement Solutions Pension Fund, HDFC Pension Management Company, and DSP BlackRock Pension Fund Managers.
NPS offers two investment choices:
Active Choice: This option allows the investor to determine the allocation of funds across various assets.
Auto Choice or Lifecycle Fund: This default option aligns investment with the subscriber's age.
The Active Choice comprises three investment options:
Asset Class E (equity stocks)
Asset Class C (fixed income instruments excluding government securities)
Asset Class G (solely government securities)
Investors can choose one of these options or a combination.
Yes, you can modify your investment choices once annually for both Tier-I and Tier-II accounts.
Yes, you have the flexibility to alter your scheme preference and pension fund manager. You can even switch between investment options (active and auto choices).
An annuity is a financial product that ensures a regular income stream (monthly, quarterly, annually, etc.) at a predetermined rate over a specified period of time, chosen by the subscriber.
In the context of NPS, when a subscriber withdraws or reaches maturity, they are required to allocate at least 40% of the accumulated corpus to purchase an annuity.
This involves entrusting a portion of the funds to an Annuity Service Provider (ASP), who offers various annuity options to ensure a consistent income after retirement. Essentially, an annuity is akin to a pension.
Presently, PFRDA has empanelled the following insurance companies as ASPs:
Life Insurance Corporation of India
SBI Life Insurance
ICICI Prudential Life Insurance
Bajaj Allianz Life Insurance
Star Union Dai-ichi Life Insurance
Reliance Life Insurance
HDFC Standard Life Insurance
Here are several standard annuity options that ASPs offer. Keep in mind that some ASPs might provide slightly different options or combinations thereof:
Lifetime pension (annuity) at a uniform rate for the subscriber's life.
Pension (annuity) paid for a specific period (5, 10, 20 years) and subsequently for life.
Lifetime pension (annuity) with a refund of the purchase price upon the subscriber's demise.
Lifetime pension (annuity) with 50% of the annuity continuing to the spouse upon the subscriber's death.
Lifetime pension (annuity) with 100% of the annuity continuing to the spouse upon the subscriber's death.
Lifetime pension (annuity) with 100% of the annuity continuing to the spouse upon the subscriber's death and a refund of the purchase price upon the spouse's demise.
The annuity rate varies based on the chosen annuity option. At present, it falls within the range of 5-7%, depending on the specific option selected.
It's important to note that Annuity/Pension plans are fixed-income instruments, ensuring guaranteed returns on the invested funds and not being influenced by market fluctuations.
For Annuity return and option details, you can refer to this link: Annuity Quotes