NPS Interest Rate 2022

National Pension Scheme is a government-initiated pension scheme, which is regulated by the Pension Fund Regulatory and Development Authority of India (PFRDA). The NPS scheme was specifically introduced to ensure the financial security of the individuals after retirement. The individual can make a regular contribution towards the NPS scheme during their working life and avail the benefit of regular income in form of an annuity after retirement.

Read more
Best Pension Options
  • Get Tax Free Pension For Life

  • Flexibility to withdraw fund value any time

  • Guaranteed Tax Savings

    Under Sec 80 C & 10(10D)

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Invest ₹6,000/month & Get Tax Free Monthly Pension of ₹60,000

Get the best returns & make the most of your Golden years

View Plans
Please wait. We Are Processing..
Plans available only for people of Indian origin By clicking on "View Plans" you agree to our Privacy Policy and Terms of use #For a 55 year on investment of 20Lacs #Discount offered by insurance company Tax benefit is subject to changes in tax laws
Get Updates on WhatsApp

Along with the benefit of financial protection after retirement, the NPS scheme also offers the advantage of tax savings. With a current NPS interest rate of 9%-12%, this is one of the most lucrative options of investment for individuals who want to create a financial cushion in the long term and secure their retirement phase.  Let’s read further to know in detail about the interest rate on the NPS scheme.

What is NPS Interest Rate?

NPS is a voluntary pension fund, which is regulated by the Pension Fund Regulatory and Development Authority of India. The individual can start contributing towards the NPS scheme with a minimum contribution of Rs. 6,000 in a financial year, which can be paid as lump-sum or as a monthly installment of Rs. 500. The contributed amount is invested in market-linked securities with an objective to create long-term investment return and is compounded annually.

Currently, the NPS interest rate ranges between 9%- 12%. Any Indian citizen between the age group of minimum 18 years to a maximum of 60 years can subscribe to the scheme. The maturity age of the scheme can be further extended up to 70 years. In case of a specific situation such as buying a home, treatment of any critical illness, or sponsoring a child’s higher education, the subscribers can make a partial withdrawal of up to 25% of the fund after completion of 3 years of the scheme from the date of opening the scheme.

NPS Interest Rate 2021-22

The returns or interest from the national pension scheme depends on the contribution made towards the scheme and the asset classes chosen. The returns generate on NPS investment are market-linked, as the money is invested in equities and debt. Based on the asset class chosen by the subscriber and the amount of contribution made by them, the interest is applicable. As compared to other investment options available in the market, NPS offers a profitable return and provides an opportunity to accumulate wealth in the long term.

The higher contribution an individual makes towards the scheme; the higher retirement corpus they can create over a specific tenure. Moreover, the advantage of the power of compounding makes NPS a lucrative option for retirement planning.

Calculation of NPS Interest Rate

The interest rate on NPS is computed based on monthly compounding. Let’s see an example to understand it in a much better way. Ms. Richa is 25 years old and wants to invest Rs. 5,000 per month in the NPS scheme. The expected rate of return is 10%, she desires to retire at the age of 60 years. As per the NPS rules, she uses 40% of the corpus to purchase an annuity at the age of 60 years.

The accumulated corpus for Ms. Richa at the age 60 can be computed using the Future Value of Annuity (FVA)

For Richa,

P = INR 5,000

r = 10% per year or 0.83% per month

N = 420 months (35 years until retirement)

FVA = (5000* (1 + 0.0083) ^ 420-1)/ 0.0083

FVA= INR 1,89,83,190.26

The contribution made is INR 21 lakh and the interest earned is INR 1. 68cr.

Out of INR 1.89Cr, 40% is used to purchase an annuity that is INR 75.93 lakhs. The accumulated sum Ms. Richa will receive after attaining the age of 60 is INR 1.13 Cr. This sum will be 60% of the retirement corpus, which is entirely tax exempted. The rest 40% of the accumulated sum used to purchase an annuity will be given to Ms. Richa as a monthly pension for the tenure chosen by her.

The subscriber can use the NPS calculator to evaluate the retirement corpus, interest earned on it, the amount used to purchase an annuity, and the expected monthly pension from an annuity.

Taxation of NPS Interest Rate

The contribution made towards the NPS scheme is qualified for tax exemption under Section 80C of the Income Tax Act. Thus, the subscriber can claim a tax exemption up to a maximum of Rs.1 .5 lakhs in a financial year. Moreover, the subscribers can also claim a tax exemption on investment up to Rs. 50,000 over and above the limit of Rs. 1.5 lakh in a financial year U/S 80CCD (1B). Also, U/S 80CCD (2) the subscriber can claim an additional limit on the contribution up to 10% of the basic salary of the employee made by the employer. However, the add-on deduction is applicable only for employees and there is no upper limit on that.

For the financial year 2020-2021, the taxation of the NPS scheme has been revised by the government. The entire 60% of the withdrawal amount on maturity is entirely tax-exempted. Earlier out of 60%, only 40% was tax exempted. The rest 20% was taxed as per the IT slab rate of the subscriber.

Written By: PolicyBazaar - Updated: 03 December 2021
Pension Plans
Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.
Retirement Plans
Monthly Pension Plans
Sign up for newsletter
Sign up our newsletter and get email about Pension Plans.
Higher Returns Than Fixed Deposit

Pension plans articles

Recent Articles
Popular Articles
How to Transfer Money to NPS Account?

05 Jan 2022

Pension accounts maintained by the NPS (National Pension System)...
Read more
How to Deposit Money in an NPS Account?

05 Jan 2022

Pension accounts such as an NPS account allow regular...
Read more
NPS Tier 2

04 Jan 2022

The NPS Tier 2 account is the non-retirement component, while...
Read more
NPS Tier 1

04 Jan 2022

NPS Tier 1 is the compulsory component of the National Pension...
Read more
NPS Death Benefits

04 Jan 2022

The National Pension Scheme or NPS is a government-sponsored...
Read more
NPS Calculator: National Pension Scheme Calculator Online
National Pension Scheme Calculator is an online tool, which allows the individual to calculate the estimated...
Read more
National Pension Scheme (NPS)
National Pension Scheme (NPS) is an investment cum pension plan launched by the Indian Government. This scheme is...
Read more
Saral Pension Yojana
In India, there are various individual immediate annuity products offered by life insurance companies. These...
Read more
LIC Senior Citizen Pension Scheme
Post demonetization the banks are cutting down the interest rates on fixed deposits. Hence, to safeguard the...
Read more
Top Pension Plans in India
Pension plans are one of the most sought-after investment options that have gained huge popularity over the...
Read more
Download the Policybazaar app
to manage all your insurance needs.