Use this National Pension Scheme(NPS)Calculator to calculate the amount of pension wealth you will accumulate on retirement.
Frequently asked questions
What is NPS?
National Pension Scheme (NPS) is a pension plus investment scheme to provide old age security to Citizens of India. It is a voluntary and long-term investment plan for retirement under the purview of the Pension Fund Regulatory and Development Authority (PFRDA) and Central Government. National Pension System Trust (NPST) established by PFRDA is the registered owner of all assets under NPS. A certain portion of NPS is invested in equities. These have a lock-in period till your retirement.
It is open to employees across different sectors such as public, private and unorganized sectors (except armed forces). The scheme encourages people to invest regularly during their employment years towards the pension account. Post-retirement, either a certain percentage of the corpus can be withdrawn or as monthly pensions. Most noteworthy of all its features, NPS is open on a voluntary basis and offers tax benefits up to Rs 2 lakh under Section 80C and Section 80CCD.
Types of NPS Accounts
There are two types of NPS accounts:
- Tier I (default account)
- Tier II (voluntary account)
|Particulars||NPS Tier - I Account||NPS Tier- II Account|
|Tax Exemption||Up to Rs 2 Lakhs p.a.||None|
|Minimum Contribution||Rs 500 or Rs 1,000 p.a.||Rs 250|
|Maximum Contribution||No Limit||No Limit|
Tier-I account is mandatory for everyone who opts for NPS. Central Government employees have to contribute 10% of their basic salary. For everyone else, the NPS is a voluntary investment option.
Equity Allocation Rules
The NPS invests in different schemes, and the Scheme E of the NPS invests in equity. A maximum of 50% (75% hike proposed) of your investment can be allocated to equities.
There are two options available:
- Auto choice - This decides the risk profile of your investments based on your age. For example, the older you get the more stable and less risky your investment should be.
- Active choice - This lets you decide the scheme and split your investments.
Who should invest in the NPS?
Indian Citizens aged between 18 and 60 years can invest through NPS. This is best suited for investors who want to plan for their retirement early and have a low-risk appetite.
How to open an NPS account?
- Offline Process - Open an NPS through PoPs (Point of Presence - could be a bank). Collect a subscriber form the PoP and submit it along with KYC papers. Ignore if you are already KYC-compliant with that bank. Upon making an initial investment (not less than Rs. 500 or Rs. 250 monthly or Rs. 1,000 annually), the PoP will send you a PRAN – Permanent Retirement Account Number. With this number and the given password, you can operate your account. A one-time registration fee of Rs.125 is charged for this process.
- Online Process - Open an account online through (enps.nsdl.com). Link your account to your PAN, Aadhaar and/or mobile number. Validate the registration using the OTP. A PRAN (Permanent Retirement Account Number) will be generated which is used to operate your account.
How to withdraw money from NPS account?
- Early Withdrawal and Exit rules – It is important to hold your pension scheme until the age of 60 years. You may withdraw up to 25% if you have been investing for at least 3 years. A maximum of 3 withdrawals is permitted with a gap of 5 years during the entire tenure. While restrictions are only for Tier I accounts, Tier II has no such restrictions.
- Withdrawal Rules After 60 – The entire corpus of your NPS cannot be withdrawn post-retirement. At least 40% is required to be kept aside to receive a regular pension from a PFRDA-registered insurance firm. Of the remaining 60%, 40% is tax-free and the remaining 20% will be subjected to taxation as per your tax slab.
What is an 80C deduction?
Section 80 C of the Income Tax Act, exempts certain investments and expenditures from being taxed. It allows deductions up to Rs 1,50,000, irrespective of your tax bracket. Small investments in savings schemes like PPF, Life Insurance, NSC, ELSS, Pension Plans and Infrastructure Bonds qualify for deduction under 80 C.National Pension Scheme (NPS) - National Pension Scheme (NPS) is a pension cum investment scheme to provide old age security to Citizens of India. It is a voluntary and long-term investment plan for retirement under the purview of the Pension Fund Regulatory and Development Authority (PFRDA) and Central Government. These have a lock-in period till your retirement. Public Provident Fund (PPF) - PPF is a small savings scheme offered by the government of India through banks. Investments made in PPF have a lock-in of 15 years and give a fixed return according to the interest rate published by the Ministry of Finance every quarter. The interest rate on PPF stands at 8% effective from 1st October 2018 as per the latest govt. notification. ELSS Funds: Tax-saving ELSS Mutual funds are eligible for tax deductions under Section 80 C. These funds invest in stocks and are hence linked to stock markets. These funds have a lock-in period of 3 years (lowest of any tax-saving option) and hence the investors can not withdraw their money before the 3-year period. These are the only Mutual funds that have a lock-in. Employee Provident Fund: EPF is a deduction that the employer makes from your salary, this contribution forms part of 80 C. Children Tuition Fees: Fees paid towards full-time education of your children can be claimed as part of 80 C deduction. This means fees paid to an educational institution, college or school. This deduction can be availed for a maximum of 2 children. And not for, your own education or your spouse’s education. Repayments of Home Loan Principal: Principal amount repayments on your housing loan are deducted under 80 C. Life Insurance Premium: Life insurance premium paid in the year can be claimed for deduction. Premium paid for yourself, your spouse or your children can be claimed under 80 C. You can have more than one life insurance policy and premium paid for all are eligible for deduction. Tax Saving Fixed Deposits: Tax-saving FDs are a special category of FDs which have a 5-year lock-in period. Unlike regular FDs, premature withdrawals are NOT allowed from Tax-saving FDs. They qualify as an 80 C tax-saving instrument and thus investments up to Rs1,50,000 p.a. are exempt from income tax. However, the interest on these FDs remains taxable as per your income at marginal income tax rate. TDS of 10% also applies. Unit Linked Insurance Plans (ULIPs): ULIPs are a variant of traditional endowment plan. ULIPs have a high premium. They offer investment in mutual funds along with insurance, therefore, there are many charges towards these. The charges on ULIPs are funds allocating charges, fund management fee, policy administration fee, fund switching charges, and agent fees.
How much to invest in NPS?
Deduction up to Rs 1.5 lakhs can be claimed for NPS, for both yours and employer’s contribution.
- 80CCD(1) covers the self-contribution, which is a part of Section 80C. The maximum deduction one can claim under 80CCD(1) is 10% of the salary, but no more than the said limit.
- For the self-employed taxpayer, this limit is 20% of the gross income. You can claim any additional self-contribution (up to Rs. 50,000) under section 80CCD(1B).
The scheme, therefore, allows a tax deduction of up to Rs. 2 lakh in total.
Why should one invest in NPS?
Firstly, opening an NPS account is simple. It can be done either with POPs or through eNPS. Second, the fund is flexible enough to let one choose their investment options and pension funds. There is no restriction on the number of installments. One can contribute an amount at any time of the year. The account can be operated from anywhere. Lastly, NPS is regulated by PFRDA, has transparent investment norms, regular monitoring and performance review of fund managers by NPS Trust. A portion of NPS savings is invested in equities. Offers higher returns than other tax-saving instruments like PPF. Historical returns have been around 8-10%.
How to use the National Pension Scheme (NPS) calculator?
Scripbox’s NPS calculator is a tool to find out how much can one withdraw from their NPS amount at the age of 60. Also, the calculator shows calculations for Rs 10,000 invested monthly for the next 30 years in NPS with the asset allocation between equity (50%), corporate bonds (30%) and government bonds (20%). The returns earned on these are 12%, 8.5% and 7.5% respectively form the maturity amount.
The maximum one can withdraw is 60% of the maturity amount. The rest 40% is converted into an annuity on which a monthly pension of 7% (assumed) is withdrawn.
Before the age of 60, the withdrawal is restricted to 25% of the balance amount. And the number of withdrawals are limited to 3 with each withdrawal having a gap of 5 years.
ELSS vs NPS
National Pension Scheme (NPS) and Equity Linked Savings Scheme (ELSS) both qualify for tax savings, both invest in equity, though of different percentages and both have lock-in periods. So which one is better? Here’s a small table comparing both NPS and ELSS with each other on different parameters.
|Lock in Period||Has a 3 year lock in period.||Has a lock in period up to retirement,which is till the age of 60.|
|Tax benefits||Qualifies for a tax saving of Rs 50,000 per annum under 80C.||Qualifies for a tax saving of Rs 1,50,000 per annum under 80C and additional Rs 50,000 under 80CCD(1B).|
|Minimum Investment||Minimum investment is Rs 500 which can be invested as lump sum or SIP.||Rs 500 is the initial contribution and need to invest a minimum of Rs 6,000 per annum.|
|Asset Allocation||Money is invested entirely in equity in a diversified manner and is actively managed.||The money invested is split in to equity and bonds. With 50% going to equity and the rest to government bonds|
|Pre mature withdrawal||The money cannot be pre maturely withdrawn before the lock in period of 3 years expires.||Invested amount can be withdrawn pre maturely with certain condition.|
|Taxes||There is a LTCG tax of 10% on gains above Rs 1,00,000.||Maturity amount is partially taxable|
Even with no premature withdrawal, ELSS is more flexible and liquid investment category than NPS. In contrast to NPS, ELSS allows the money invested to earn its full potential as these funds are entirely equity-based funds which are actively managed. Whereas in NPS the equity allocation is just 50%. Hence returns earned on ELSS funds are higher than NPS. Above all, ELSS funds are highly liquid when compared to NPS.
Can NRIs invest in NPS?
Yes, NRIs can open NPS account. Contributions made by NRI are subject to regulatory requirements as prescribed by RBI and FEMA from time to time. However, OCI (Overseas Citizens of India) and PIO (Person of Indian Origin) card holders and HUFs are not eligible for opening of NPS account.
Can I open multiple NPS accounts?
No, opening multiple NPS accounts for an individual is not permitted.