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Retirement & Pension
National Pension System (NPS)
A low-cost, market-linked pension — build a corpus, then draw a lifelong pension.
Market-linked (~9–11% long-run)Extra ₹50k 80CCD(1B) deduction
What is NPS?
The National Pension System is a government-sponsored, market-linked retirement scheme regulated by PFRDA. You contribute during your working years, your money is invested across equity and debt at very low cost, and at 60 you take up to 60% as a tax-free lump sum and use at least 40% to buy an annuity that pays you a pension for life. Its standout feature is an extra ₹50,000 tax deduction under Section 80CCD(1B), over and above the ₹1.5 lakh 80C limit.
Returns
Market-linked (equity + corporate & govt debt)
Entry age
18 to 70 years
Lock-in
Till age 60 (Tier I)
At 60
Up to 60% lump sum (tax-free) + min 40% to annuity
Tax
₹1.5L (80CCD1) + extra ₹50k (80CCD1B) + employer (80CCD2)
Calculate
₹
₹500₹5,00,000
Years
18 Years59 Years
NPS runs until age 60
% p.a.
5 % p.a.14 % p.a.
NPS is market-linked (equity + debt mix)
%
40 %100 %
Min 40% at 60
%
4 %9 %
Estimated monthly pension
₹22,605
from age 60, for life
Corpus at 60
₹1.13 Cr
Tax-free lump sum
₹67.81 L
You invest
₹18.00 L
Annuity corpus
₹45.21 L
Indicative only. NPS returns are market-linked and not guaranteed; the pension depends on the annuity rate at retirement.
NPS — The Complete Guide
18 questions answered — everything from eligibility and HUF/NRI rules to tax, withdrawals and edge cases.
The basics
What is NPS and how does it work?
NPS is a defined-contribution pension scheme: you contribute regularly to your own account (identified by a PRAN), the money is invested in market-linked funds, and it grows into a corpus by age 60. At 60 you withdraw part as a lump sum and convert the rest into an annuity (a monthly pension). What you get depends on how much you put in, how markets do, and the annuity rate at retirement.
What is the difference between Tier I and Tier II?
Tier I is the main pension account — it has the tax benefits and the lock-in until 60. Tier II is an optional, add-on investment account with no lock-in and no tax benefit (except for government employees), which you can only open if you have a Tier I account. Think of Tier I as your pension and Tier II as a flexible savings wallet.
What is a PRAN?
A Permanent Retirement Account Number — a unique 12-digit number that stays with you for life across jobs and cities. It makes NPS fully portable: change employers or move states and your PRAN (and corpus) travels with you.
Returns & investment
How are my NPS contributions invested?
Across four asset classes: E (equity, capped at 75%), C (corporate debt), G (government securities) and A (alternatives). You can choose "Active" (set your own mix) or "Auto" (a lifecycle fund that de-risks from equity to debt as you age). Costs are among the lowest of any managed product in India.
What returns can I expect?
NPS is market-linked, so returns are NOT guaranteed. Over long periods, balanced NPS accounts have historically delivered roughly 9–11% a year, helped by equity exposure and rock-bottom fees. Our calculator lets you set your own expected return — use a conservative figure for planning.
Who can join
Who is eligible for NPS?
Any Indian citizen aged 18 to 70, including salaried employees, the self-employed, and NRIs/OCIs. You can open an account online (eNPS) with Aadhaar/PAN in a few minutes, or through a bank/Point-of-Presence.
Can NRIs invest in NPS?
Yes — NRIs and OCIs can open an NPS Tier I account and contribute from their NRE/NRO accounts. The corpus and pension follow the usual NPS rules. It's a popular low-cost retirement option for Indians abroad.
Contributions
What is the minimum and maximum I can contribute?
For Tier I, a minimum of ₹500 per contribution and ₹1,000 per financial year to keep the account active. There is no upper limit on how much you can contribute — the limits are on how much is tax-deductible, not on the contribution itself.
Tax benefits
What tax deductions does NPS give?
Three layers (old regime): (1) 80CCD(1) — your contribution within the overall ₹1.5 lakh 80C limit; (2) 80CCD(1B) — an EXTRA ₹50,000, exclusive to NPS; and (3) 80CCD(2) — your employer's contribution, deductible up to 10% of salary (14% for government employees), which is over and above the ₹2 lakh above.
Does NPS help under the new tax regime?
Yes — while 80CCD(1) and 80CCD(1B) are old-regime only, the employer-contribution deduction under 80CCD(2) IS available under the new regime too (up to 14% of basic salary). That makes employer-routed NPS one of the few tax breaks left in the new regime.
Is the maturity amount taxed?
At 60, the lump sum you withdraw (up to 60% of the corpus) is fully tax-free. The remaining 40%+ used to buy an annuity is not taxed at purchase — but the monthly pension you later receive from the annuity is taxable at your slab in the year of receipt.
At retirement & exit
What happens at age 60?
You can withdraw up to 60% of the corpus as a tax-free lump sum, and you must use at least 40% to buy an annuity that pays a lifelong pension. If your total corpus is ₹5 lakh or less, you're allowed to withdraw 100% and skip the annuity.
Can I exit NPS before 60?
Yes, but it's restrictive: on premature exit (after at least a few years), you can take only 20% as lump sum and must annuitise 80% — the reverse of the age-60 split. If the corpus is ₹2.5 lakh or less, you can withdraw it fully. NPS is genuinely a long-term, retirement-only product.
Can I make partial withdrawals?
Yes — after 3 years, you can partially withdraw up to 25% of YOUR OWN contributions (not employer's or gains), up to three times over the life of the account, for specified reasons: children's higher education or marriage, buying/building a house, or treatment of critical illness.
Annuity & pension
What is an annuity, and who provides it?
An annuity is a product bought from an insurance company (an "Annuity Service Provider") that converts your lump sum into a guaranteed regular pension. NPS lets you choose the provider and the annuity type at exit — e.g. pension for life, pension with return of purchase price, or joint-life with your spouse.
What determines my monthly pension?
Three things: the size of your corpus at 60, the fraction you annuitise (40%–100%), and the annuity rate offered at that time (currently around 6–7%). A larger corpus and a higher annuity rate mean a bigger pension. Because rates change, the exact pension is only known at retirement.
Good to know
NPS vs PPF vs EPF — how do they differ?
PPF is fully guaranteed and tax-free but capped at ₹1.5 lakh a year. EPF is a salaried default at a fixed 8.25%. NPS is market-linked (potentially higher returns via equity), ultra-low-cost, and gives an exclusive extra ₹50k deduction — but part of it must become an annuity, and the pension is taxable. Many people use all three for different roles.
What happens to NPS on the subscriber's death?
Before 60, the entire accumulated corpus is paid to the nominee/legal heir (the nominee may also opt to continue or annuitise). This is set out in the scheme rules, so always keep your nomination updated.
Related tools & guides
Educational information only, not investment advice. Interest rates for government small-savings schemes are set by the Government of India and reviewed every quarter; bank FD/RD rates vary by bank and tenure. Figures are indicative — confirm the current rate and rules with the bank/post office before investing. Calculator results are for illustration purposes only. Actual returns may vary based on market conditions, fund performance, and other factors.
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