The National Pension System (NPS) is a government-backed retirement scheme regulated by PFRDA, offering market-linked returns and significant tax benefits. Use our free NPS Calculator India to project corpus, monthly pension, and tax savings. Part of our Complete Salary & Tax Guide for India.
What Is NPS?
NPS is a voluntary, long-term retirement savings scheme where your contributions are invested in market-linked funds (equity, corporate bonds, government securities). At retirement, you withdraw a lump sum and purchase an annuity for regular pension income.
NPS Tier 1 vs Tier 2
Tier 1 is the main retirement account with tax benefits and withdrawal restrictions until age 60. Tier 2 is a voluntary savings account with no tax benefits but flexible withdrawals — like a mutual fund with easier access.
NPS Tax Benefits — Old vs New Regime
Under the old regime: Section 80CCD(1) allows deduction up to 10% of salary (within ₹1.5L 80C limit), plus Section 80CCD(1B) offers an additional ₹50,000 exclusively for NPS. Under the new regime, only employer contributions under 80CCD(2) are deductible.
The 40%/60% Rule at Retirement
At exit, minimum 40% of corpus must buy an annuity for monthly pension. Up to 60% can be withdrawn as a tax-free lump sum. Our calculator lets you adjust annuity percentage from 40% to 100%.
How to Choose Annuity Percentage
Higher annuity = more monthly pension but less lump sum flexibility. Lower annuity (minimum 40%) = larger tax-free lump sum at retirement. Choose based on whether you need regular income or a one-time corpus for other goals.
NPS vs PPF vs EPF
| Feature | NPS | PPF | EPF |
|---|---|---|---|
| Returns | Market-linked (~10-12%) | Guaranteed 7.1% | EPFO declared rate |
| Lock-in | Until 60 | 15 years | Until retirement |
| Tax | 80CCD deductions; 60% lump sum tax-free | EEE status | EEE status |
| Liquidity | Limited partial withdrawal | Partial from year 7 | Partial withdrawal rules |
Compare with PPF Calculator and EPF Calculator. Guide: PPF calculator guide.
Frequently Asked Questions
What is the minimum monthly contribution to NPS?
The minimum contribution to NPS Tier 1 is ₹500 per month, or ₹1,000 per year. There is no maximum limit on contributions, though tax deductions under Section 80CCD are capped at 10% of salary under 80CCD(1) and an additional ₹50,000 under 80CCD(1B).
Can I withdraw the full NPS corpus at retirement?
No — at least 40% of the NPS corpus must be used to purchase an annuity from a PFRDA-approved Annuity Service Provider (ASP) to receive a regular monthly pension. You can withdraw the remaining 60% as a tax-free lump sum at retirement.
Is NPS better than PPF?
Both serve different purposes. NPS is market-linked with potentially higher returns (10-12% historically) and offers additional ₹50,000 deduction under 80CCD(1B), but has a mandatory annuity component and limited liquidity. PPF offers guaranteed 7.1% returns, complete EEE tax status, and more flexibility for partial withdrawals. For retirement planning, combining both is often recommended.
Is NPS available under the new tax regime?
Under the new tax regime, only your employer's NPS contribution under Section 80CCD(2) is deductible (up to 10% of salary for private employees). Self-contributions under 80CCD(1) and the extra ₹50,000 under 80CCD(1B) are not available under the new regime.