What is the difference between NPS Tier I and Tier II accounts?

Tier I is the primary retirement account with restrictions on withdrawal and offers tax benefits under Sections 80C and 80CCD(1B). Tier II is a voluntary, flexible investment account with no lock-in (except for government employees) and generally does not offer tax benefits. Tier I is for retirement, Tier II is more like a mutual fund with easier liquidity.

How much pension will I get from NPS?

Your pension from NPS depends on your total corpus at exit, the percentage of corpus used to buy an annuity (minimum 40% at age 60), the annuity rate offered by the chosen insurer, and the annuity option (e.g., life annuity, joint life, with or without return of purchase price). This calculator projects your corpus and estimates monthly pension based on an assumed annuity rate.

What are the tax benefits of NPS?

NPS offers tax deductions under Section 80CCD(1) within the overall 80C limit (up to ₹1.5 lakh), an additional ₹50,000 under Section 80CCD(1B), and for eligible salaried employees, employer contributions under Section 80CCD(2) subject to limits. At exit, up to 60% of the corpus withdrawn as lump sum is currently tax-exempt, while the annuity income is taxable as per your slab.

Is NPS safe and who regulates it?

NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Assets are managed by licensed pension fund managers and held in custody with a central record-keeping agency. While market risk exists because NPS invests in equity and debt, the framework is tightly regulated and transparent.

NPS Projection Calculator: Pension Wealth, Annuity & Tax Benefits (Tier I & II)

Q: Can I exit NPS before 60?

Yes, but with conditions. For premature exit (before 60) you must use at least 80% of the corpus to buy an annuity and can withdraw up to 20% as lump sum. Partial withdrawals from Tier I are allowed after a specified lock-in period and for defined purposes, subject to limits.

Estimate your future NPS corpus, monthly pension, and tax savings under Sections 80C & 80CCD(1B). Compare scenarios and understand how Tier I and Tier II work.

NPS Pension Wealth & Annuity Estimator

Current age (years)

NPS entry age is typically 18\u201370 years.

Planned retirement age (years)

Monthly contribution to NPS Tier I (₹)

₹5,000

You can also add lump sums occasionally; this tool focuses on regular contributions.

Expected annual return during accumulation (%)

Typical long-term blended equity/debt NPS returns are often assumed around 8\u201310%, but not guaranteed.

Assumed annuity rate at retirement (% per year)

Approximate rate offered by annuity providers; actual rates depend on age, option, and market conditions.

Corpus used to buy annuity at exit (%)

Regulations require at least 40% annuitisation at age 60 for normal exit.

Your marginal tax slab (for deduction estimate)

Used to estimate annual tax saved via Section 80C + 80CCD(1B) deductions.

Projection Summary

Investment horizon

30 years

Total contributions

₹0

Projected NPS corpus at retirement

₹0

Corpus used for annuity

₹0

Lump sum at retirement (approx. tax-free)

₹0

Estimated annual pension

₹0

Estimated monthly pension

₹0

Estimated annual tax saved via NPS (Tier I)

₹0

Includes Section 80C and additional 80CCD(1B) deduction, subject to statutory limits.

Disclaimer: This is an educational illustration. Actual returns, annuity rates, tax rules, and NPS regulations may change. Please consult a SEBI-registered investment adviser or tax professional for personalised advice.

What is NPS (National Pension System)?

The National Pension System (NPS) is a voluntary, long-term retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA) in India. You invest regularly during your working years, your money is invested in a mix of equity and debt, and at retirement you receive:

a lump sum (up to 60% of the corpus, currently tax-exempt), and
a monthly pension by purchasing an annuity from a life insurance company.

Key features at a glance

Eligibility: Indian citizens and NRIs aged 18\u201370 years (subject to KYC).
Regulator: PFRDA; assets held with a central record-keeping agency (CRA).
Investment choices: Equity (E), Corporate Debt (C), Government Bonds (G), and Alternative assets (A).
Tax benefits: Attractive deductions under Sections 80C, 80CCD(1B), and 80CCD(2).
Low cost: Among the lowest fund management charges in the market.

Tier I vs Tier II NPS accounts

NPS offers two types of accounts. Understanding the difference is crucial before you start investing.

Feature	Tier I (Primary Pension Account)	Tier II (Voluntary Savings Account)
Purpose	Long-term retirement corpus; mandatory for NPS	Flexible savings; works like an open-ended mutual fund
Lock-in	Restricted withdrawals; exit rules apply	No lock-in for most subscribers (except Govt employees)
Tax benefits on contribution	Yes \u2013 under Sections 80C, 80CCD(1B), 80CCD(2)	Generally no tax benefit for individuals
Minimum contribution	Low; typically \u20b9500 per contribution, \u20b96,000 per year recommended	Low; flexible, no annual minimum requirement
Withdrawal at retirement	Up to 60% lump sum, at least 40% to buy annuity	Free to withdraw anytime; no annuity requirement

How this NPS calculator works

The calculator projects your NPS corpus and pension using standard time-value-of-money formulas.

1. Investment horizon

Years of investment

\\( n = \\text{Retirement age} - \\text{Current age} \\)

2. Future value of monthly NPS contributions

We treat your monthly contribution as an annuity growing at an assumed annual rate \\( r \\).

Monthly rate: \\( i = \\dfrac{r}{12} \\)

Number of months: \\( N = 12n \\)

Future value of contributions:

\\[ FV = P \\times \\frac{(1 + i)^N - 1}{i} \\]

where:

\\( P \\) = monthly contribution
\\( i \\) = monthly return rate
\\( N \\) = total number of contributions

3. Annuity and lump sum at retirement

At exit, you choose what percentage of the corpus to convert into an annuity.

Annuity corpus: \\( C_a = FV \\times p_a \\)

Lump sum: \\( C_l = FV - C_a \\)

where \\( p_a \\) is the annuity percentage (e.g., 40% = 0.40).

We then estimate your annual and monthly pension using a simple annuity rate \\( r_a \\):

Annual pension (approx.): \\( I_{year} = C_a \\times r_a \\)

Monthly pension (approx.): \\( I_{month} = \\dfrac{I_{year}}{12} \\)

In reality, annuity pricing is more complex and depends on age, gender, interest rates, and the specific annuity option (e.g., joint life, return of purchase price). This calculator provides a simplified, transparent estimate.

Tax benefits of NPS (Tier I)

NPS is popular partly because of its strong tax incentives. Broadly:

Section 80CCD(1): Employee/self-contribution within the overall Section 80C limit of \u20b91.5 lakh.
Section 80CCD(1B): Additional deduction of up to \u20b950,000 exclusively for NPS (over and above 80C).
Section 80CCD(2): Employer contribution deduction for salaried individuals, subject to percentage-of-salary caps.

Our calculator approximates the annual tax saved from your own Tier I contributions as:

\\[ \\text{Eligible deduction} = \\min(P \\times 12, 200{,}000) \\]

\\[ \\text{Tax saved} \\approx \\text{Eligible deduction} \\times \\text{Tax slab rate} \\]

For simplicity, we assume up to \u20b91.5 lakh under 80C + \u20b950,000 under 80CCD(1B) are available and not already fully used by other investments. Actual eligibility depends on your full tax profile and regime (old vs new).

Worked example

Suppose:

Current age: 30
Retirement age: 60
Monthly NPS Tier I contribution: \u20b95,000
Expected annual return: 10%
Annuity rate at retirement: 6%
Annuity percentage: 40%
Tax slab: 30%

Then:

Investment horizon: 30 years (360 months)
Total contributions: \u20b95,000 \u00d7 12 \u00d7 30 = \u20b91,800,000
Projected corpus: around \u20b93.4 crore (depending on compounding assumptions)
Annuity corpus (40%): about \u20b91.36 crore
Estimated annual pension: \u20b91.36 crore \u00d7 6% \u2248 \u20b98.16 lakh
Estimated monthly pension: \u20b98.16 lakh / 12 \u2248 \u20b968,000
Approx. annual tax saved: min(\u20b95,000 \u00d7 12, \u20b92,00,000) \u00d7 30% = \u20b9180,000

Use the sliders and inputs above to run your own scenarios instantly.

Frequently asked questions about NPS

1. What is NPS and who can invest?

NPS is a government-backed, market-linked retirement savings scheme. Any Indian citizen (resident or NRI) between 18 and 70 years who meets KYC requirements can open an NPS account.

2. How do I open an NPS account?

You can open NPS through:

Online (eNPS): via the CRA or NPS Trust website using PAN/Aadhaar and a bank account.
Offline: through Point of Presence (PoP) service providers such as banks, post offices, and financial intermediaries.

3. What happens at retirement (age 60)?

You can withdraw up to 60% of the corpus as a lump sum (currently tax-exempt).
You must use at least 40% of the corpus to buy an annuity from an empanelled life insurer.
You may defer withdrawal and annuity purchase within regulatory limits if you wish to stay invested longer.

4. Can I exit NPS before 60?

Yes, but for premature exit you must typically use at least 80% of the corpus to buy an annuity and can withdraw only up to 20% as lump sum. Partial withdrawals from Tier I are allowed after a minimum lock-in period and for specified purposes (e.g., higher education, marriage, house purchase), subject to caps.

5. Is NPS better than mutual funds or EPF?

They serve different purposes. NPS is designed specifically for retirement, with compulsory annuitisation and extra tax benefits. Mutual funds offer more flexibility and liquidity but no mandatory pension. EPF is an employer-linked provident fund with its own rules and interest rate. Many investors use a combination of all three.

6. Are NPS returns guaranteed?

No. NPS invests in equity and debt markets, so returns are market-linked. However, the scheme is tightly regulated, offers diversified investment options, and has historically delivered competitive long-term returns.

7. How are NPS withdrawals taxed?

Lump sum (up to 60%): Currently exempt from tax on exit at age 60, subject to prevailing rules.
Annuity income: Taxed as income under the head \u201cIncome from Other Sources\u201d as per your slab.

Tax rules can change; always check the latest provisions or consult a tax professional.

Best practices when using NPS

Start early to benefit from compounding over decades.
Choose an asset allocation (Active or Auto choice) aligned with your risk profile and age.
Review your pension fund manager performance periodically.
Use the additional \u20b950,000 80CCD(1B) limit efficiently if you are in a higher tax bracket.
Plan your annuity option (single life, joint life, return of purchase price) based on family needs.

This tool is for education and planning only. It does not constitute investment, tax, or legal advice. For personalised recommendations, please consult a qualified financial or tax adviser.