NPS Returns

This guide covers how NPS returns work, how to estimate them using a calculator, and what tax benefits you can expect.

How Do NPS Returns Work?

NPS returns depend on the performance of selected asset classes and the efficiency of the chosen Pension Fund Manager (PFM). There is no fixed rate of interest; returns are purely market-linked.

Key Asset Classes:

Investment Options:

• Active Choice: You control asset allocation.
• Auto Choice: Age-based allocation is managed automatically.

Example: If you start investing ₹6,000 every month at 30 and continue until you retire at 60, your total savings can grow to over ₹1 crore, assuming an average NPS interest rate of 10%. 40% will be used to give you a monthly pension, and the remaining 60% can be taken out as a tax-free lump sum.

NPS Calculator

Your Age

Years

18 Years 59 Years

Enter Your Age

Monthly Investment

₹

₹500 ₹10L

Enter Investment Per Month

Expected Return on Investment

%

5% 15%

Expected Return on Investment

Percentage of Corpus Allocated for Pension

%

40% 100%

Enter Corpus Percentage

Expected Return from Pension

%

5% 15%

Enter Annuity Return

₹0

Your Monthly Pension

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₹0

Your Monthly Pension

View Plans Your Pension Calculation

Your Pension Calculation

Total Investment

Returns Earned

Maturity Amount

Maturity Amount split (Lumpsum & Pension)

60%

Lumpsum Amount

At the age of 60 Yrs

40%

Pension Wealth

At the age of 60 Yrs

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What Are the Tax Rules for NPS Returns?

Taxation rules must be considered before investing in the National Pension Scheme. The NPS returns are taxed according to the withdrawal rules of Tier I and Tier II NPS accounts. 

The following are the withdrawal rules for both accounts:

Tax Benefits of NPS 

Understanding how to save on taxes through the National Pension System (NPS) is essential. There are three key sections under the Income Tax Act that allow deductions on NPS contributions:

1. Section 80CCD(1): Employee’s Own Contribution

   Who can claim: Salaried individuals and self-employed persons

   Deduction limit:

   • Salaried: Up to 10% of Basic + Dearness Allowance (DA)
   • Self-employed: Up to 20% of gross annual income

   Cap: Part of the combined ₹1.5 lakh limit under Section 80CCD(1)

   Pro Tip: If you’ve already exhausted the ₹1.5 lakh limit through other eligible investments, you won’t be able to claim this NPS contribution unless you reduce your other deductions.

2. Section 80CCD(1B): Additional Deduction

   • Who can claim: All NPS subscribers (regardless of occupation)
   • Deduction amount: Up to ₹50,000
   • Over and above: The ₹1.5 lakh limit under Section 80CCD(1)

3. Section 80CCD(2): Employer’s Contribution

   Who can claim: Salaried individuals whose employers contribute to their NPS

   Deduction limit:

   • Up to 10% of salary (Basic + DA) under the old tax regime
   • Up to 14% under the new tax regime (as applicable to government employees)

   Exemption: This is independent of the ₹1.5 lakh cap

   Note: Under the new tax regime, the employer contribution limit rises to 14% (from 10%), offering greater tax benefits.

Real-Life NPS Growth Example

Let’s say you are 30 years old and start investing ₹5,000 monthly until 60 (for 30 years). If your investment grows at an average rate of 10% per year, here’s what you can expect:

• Total Corpus at Retirement: ₹1.14 crore
• 60% Withdrawal (Tax-Free): ₹68.4 lakhs. 
• 40% for Monthly Pension: The remaining ₹45.6 lakhs is used to buy an annuity, which gives you a monthly pension of ₹20,000 to ₹25,000 for life

The NPS interest rates and compounding long-term investment help you with strong retirement planning.

How to Use the NPS Calculator Online for Returns?

A person between 18 and 70 must enrol and receive scheme benefits. An NPS calculator gives an overview of the amount you will accumulate at maturity, interest earned, and the monthly pension. Additionally, the calculator displays the amount withdrawn and the amount to be reinvested. 

The investor must enter the following information into the calculator:

• Current age
• Expected retirement age
• Monthly contribution
• Expected NPS interest rate
• Estimated interest rate
• Annuity percentage

The calculator displays:

• Projected total maturity value at retirement
• Lump sum amount at retirement for withdrawal 
• Monthly pension from annuity

Conclusion

If you're looking for a secure, tax-saving investment plan, the National Pension System stands out as a top choice. With flexible contribution options, professional fund management, and high potential NPS returns, it is one of the best retirement planning tools available in India today.

Before investing, assess your risk appetite, use the NPS calculator, and consult a financial expert to personalise your investment plan. Your NPS account can grow into a robust retirement fund by making small, regular contributions.