NPS Calculator

All Indian citizens, including non-resident Indians, are allowed to open NPS. An NPS account is focused on only one goal – building a retirement corpus for the subscriber. Anyone who is keen to save for his golden years can consider opening an NPS account. Individuals who do not have access to any other social security net – self-employed individuals—should especially open an NPS account. Also, individuals looking for regular income post-retirement may find NPS attractive.

Pension Fund Regulatory Development Authority (PFRDA) has ensured that NPS can be opened online. Individuals comfortable transacting online can go for the online process as it offers the comfort of transacting from home. One needs a PAN card, AADHAR card and bank account—all linked—to open an NPS account online and generate a PRAN (Permanent Retirement Account Number).

In the offline world, there are a few banks and financial institutions that are allowed to act as intermediaries – technically known as points of presence (POP). Visiting one such POP can be of great help. By completing the form and submitting the Know Your Client (KYC) documents a subscriber can open an account offline as well.

There are two types of NPS accounts – Tier I and Tier II. While the former is the default account, the latter is a voluntary one. Tier I account is meant for retirement planning and withdrawals are not permitted before the age of superannuation except in specified circumstances. Tier II account is like any other investment avenue and offers interim liquidity.

Pension Fund Regulatory Development Authority (PFRDA) has appointed pension fund managers for investing money of NPS subscribers. These fund managers invest in stocks, corporate bonds, government securities and select alternate assets. A contributor can select auto choice or decide on their asset allocation. Depending on what a subscriber chooses, the money is allocated between stocks, corporate bonds and government securities. The contributor to the NPS has the right to select the pension fund manager. They can also change the pension fund manager by visiting the POP or by accessing their account online.

The contribution of upto ₹50,000 to NPS allows one to claim additional tax deduction under section 80 CCD(1B). This is over and above the tax deduction available for all tax saving options under section 80C. The employer’s contribution to the NPS account is tax-free up to 10% of salary subject to an annual overall ceiling of ₹7.50 lakh for the sum of NPS, employees’ provident fund and superannuation contribution made by the employer. Even if the employer doesn’t offer the option of NPS, you can still open an NPS account and claim deduction for the contribution made to your NPS account.

At the time of superannuation, 60% of the accumulated money can be withdrawn tax-free. The rest of the money must be used for purchasing an immediate annuity. The annuity received is taxable in the hands of the pensioner as per the slab rate.

When the money is in the accumulation stage, there is no tax incidence for the contributor.

There is no limit on the amount of money you can contribute to tier I and tier II accounts. For both these accounts, minimum investment is pegged at ₹500 and ₹250, respectively. In a tier I account, a minimum of one deposit a year is mandatory. Yearly, the minimum contribution must be kept at ₹1,000 for tier I account.

NPS is meant for retirement planning. Mutual funds on the other hand can be used for funding any financial goal including retirement. Barring ELSS (equity-linked saving schemes), other schemes do not offer any tax breaks. ELSS offers tax breaks for investments up to ₹1.5 lakh per financial year, along with other avenues such as life insurance, EPF, PPF and others.

When an investor rebalances her asset allocation by selling and buying units of mutual fund schemes focusing on stocks, bonds or gold, there is a tax incidence for the investor. When an investor changes his allocation under NPS, there is no tax incidence for the investor.