Take a 30-year-old who invests Rs 10,000 a month into an NPS Tier 1 account, expecting a blended 10 percent annual return until age 60. That is 30 years, or 360 monthly contributions, with the monthly rate being 10 percent divided by 12. Treating each contribution as invested at the start of the month, the future value works out to roughly Rs 2,27,93,253. At age 60 the rules let you withdraw up to 60 percent of the corpus as a tax-free lump sum, which is about Rs 1,36,75,952. The remaining 40 percent, about Rs 91,17,301, must be used to buy an annuity that pays a pension, and that annuity income is taxable in the year you receive it.
Step
Value
Monthly contribution
Rs 10,000
Months to age 60
360
Expected return
10 percent per year
Corpus at 60
Rs 2,27,93,253
60 percent tax-free lump sum
Rs 1,36,75,952
40 percent annuity purchase
Rs 91,17,301
How it is calculated
NPS is market-linked, so the corpus depends on the return your equity and debt mix actually earns. The calculator compounds the monthly contribution at one twelfth of the assumed annual return for every month until age 60, using a start-of-month timing that lets each deposit earn for the full month. At 60 the exit rules apply a fixed split: at least 40 percent of the corpus must purchase an annuity, and up to 60 percent can be taken as a lump sum that is tax-free. The annuity then pays a regular pension that is taxed as income. On the contribution side, NPS offers an extra Rs 50,000 deduction under Section 80CCD(1B) beyond the 80C limit, and employer contributions up to 10 percent of salary are deductible under 80CCD(2) with no upper cap, which makes it attractive for higher earners.
Frequently asked questions
NPS deduction limits?
80CCD(1): own contribution up to 10% of salary (capped under overall 1.5L 80C limit). 80CCD(1B): additional 50K dedicated to NPS, over and above the 80C ceiling. 80CCD(2): employer contribution up to 10% of salary (14% for central government employees), with no upper rupee cap.
Is the NPS lump sum at age 60 tax-free?
Yes. Up to 60% of the Tier 1 corpus withdrawn as a lump sum at age 60 is fully exempt from income tax under Section 10(12A). The remaining 40% must be used to purchase an annuity, and the pension income from that annuity is taxed as ordinary income in the year it is received.
What happens if you exit NPS before age 60?
Premature exit is allowed after completing three years. In that case only 20% of the corpus can be withdrawn as a lump sum; the remaining 80% must be annuitised. If the total corpus is below Rs 2.5 lakh at the time of exit, full withdrawal is permitted.
What return rate should I use in this calculator?
PFRDA data for the period 2009 to 2024 shows that Tier 1 equity (E) funds have delivered roughly 12-14% annualised returns, while debt (C and G) funds have delivered 8-10%. A blended rate of 10% is a common middle-ground assumption, but you should adjust it to reflect your chosen asset allocation and your own expectations for long-term market performance.