NPS Interest Rates 2026

Current NPS Interest Rate and Benefits

The term 'NPS interest rate' usually refers to the returns that individuals receive from their investments in the National Pension Scheme (NPS). Unlike a fixed deposit, NPS does not provide a fixed interest rate. The returns depend on the performance of the classes of assets that are chosen: Equity (Class E), Corporate Debt (Class C), and Government Securities (Class G). On a longer timeframe, NPS has consistently performed in the range of 9% to 12% per annum on average, but actual results vary according to market conditions, the asset allocation selected and which pension fund manager is managing the investment. 

NPS Rate of Interest for Tier 1 Account

The table below shows the returns generated by the top-performing NPS Tier I equity pension fund managers. 

*Returns as on 25th July, 2026

Top NPS Tier 1 Equity Fund Returns 

Below are the equity fund returns for NPS Tier 1 account.

*Returns as on 25th July, 2026

NPS Interest Rate for Tier 2 Account

Here are the interest rates for NPS Tier 2 account.

*NPS Tier 2 account returns as on 25th July, 2026

Types of Asset Allocation for NPS Interest Rates

The asset allocation chosen under NPS plays an important role in determining the potential returns of your investment. NPS offers four asset classes, each with different risk and return profiles:

NPS Interest Rate for all Asset Classes

The difference in NPS returns varies according to the chosen asset type and account type. The table below is a comparison of the 1-year, 5-year and 10-year returns on Tier I accounts of Equity (E), Corporate Bonds (C) and Government Securities (G).

For Tier 1 Account

*Returns as on 25th July, 2026

How to Calculate NPS Interest?

NPS returns depend on the performance of the assets in your portfolio, such as equity, corporate debt, and government securities. Throughout the scheme, returns remain market-linked, which means that they are subject to changes in the general market. But these returns add up over the investment period and slowly accumulate to create a corpus for retirement.

Let's take an example of Mradul, who is 30 years old. Mradul contributes ₹5,000 per month to NPS for a time period of 30 years. In that case, Mradul’s total investment would be around ₹18 lakh. If an average annual return is 10%, then his total accumulated amount would be around ₹1.13 crore when he reaches the age of 60.

Factors Affecting NPS Interest Rate

NPS returns are influenced by several factors, as the scheme invests in market-linked assets. The key factors affecting NPS returns include:

• Market Performance: This is directly related to the performance of equity markets, corporate bonds and government securities at a particular point in time. The value of the bond can rise as well as fall as a result of either bond yield changes or stock market swings.
• Asset Allocation: The risk and potential returns of your NPS portfolio depend on the allocation of your portfolio among Equity (Class E), Corporate Debt (Class C), and Government Securities (Class G).
• Fund Manager Performance: A fund manager is the one who manages the investment portfolio and strategies. NPS returns are directly related to the performance of fund managers. 
• Change in interest rates: Change in interest rates can have an impact on bond returns and this can impact the debt portion of an NPS portfolio.
• Economic Conditions: Inflation, GDP growth, and the global market trends are also other factors that affect NPS performance.
• Investment Tenure: Longer investment tenure gives the benefit of compounding. The tenure of investment is an important factor in determining returns on investment.

Interest Rate Comparison - NPS vs. PPF Vs EPF 

NPS, PPF, and EPF are popular retirement savings options with different return structures. Key comparison of NPS vs PPF Vs EPF is mentioned below: 

NPS vs PPF 

NPS vs EPF

NPS Interest Rates Taxation

The Income Tax Act 2025 provides tax benefits for contributions, employer contributions and maturity proceeds under an NPS. The major taxation benefits are:

• Tax Deduction under Section 124(1): Investors can avail the deduction for NPS contributions under Section 124(1) of the Income-tax Act. Overall deduction limit is ₹1.5 lakh available under Section 123 which was earlier known as Sections 80C, 80CCC, and 80CCD(1). Salaried individuals can claim deduction up to 10% which includes both basic pay and dearness allowance. Self employed investors can claim up to 20% of their gross income. 
• Deduction under Section 124(3): Subscribers can claim an additional deduction of ₹50,000 for NPS contributions, over and above the ₹1.5 lakh limit under Section 123. This deduction earlier under Section 80CCD(1B).
  
  
• Tax Benefit on Employer Contribution: Employer contributions to an employee's NPS account are eligible for deduction under Section 124(2) of the Income-tax Act, 2025 (earlier Section 80CCD(2)), subject to applicable limits.
  
  
• Lump Sum Withdrawal at Maturity: PFRDA exit rules from December 2025 allow eligible subscribers with a corpus above ₹12 lakh to withdraw up to 80% as a lump sum. At least 20% has to be used to buy an annuity. (For smaller corpuses, rules are different: full withdrawal up to ₹8 lakh, structured withdrawal for ₹8-12 lakh). However, the tax exemption on the lump sum is still limited to 60% (Schedule II, Income-tax Act, 2025 (earlier, Section 10(12A)). Unless there is a change in the tax laws, any withdrawal in excess of 60% will be taxed at the applicable slab rate. The pension paid from the annuity is taxable at the income tax slab rate applicable.

Key Takeaways 

NPS does not offer fixed interest rates. As it is market linked, its returns have historically ranged around 9% to 12%. The returns depend on the asset allocation and pension fund manager. If you want to optimise the NPS returns selecting the right kind of mix of equity, corporate bonds and government securities can be beneficial for you. The key to building a substantial retirement corpus is making regular contributions and staying invested long enough for compounding to work.