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NPS Calculator

This article briefs about NPS its types and NPS calculator.

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. Also, a certain portion of NPS is invested in equities. These have a lock-in period until 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 Post-retirement, either a certain percentage of the corpus can be withdrawn or as monthly pensions.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) and Tier II (voluntary account).

 

ParticularsNPS Tier-I AccountNPS Tier-II Account
StatusDefaultVoluntary
WithdrawalsNot PermittedPermitted
Tax ExemptionUp to Rs 2 Lakhs p.a.None
Minimum ContributionRs 500 or Rs 1,000 p.a.Rs 250
Maximum ContributionNo LimitNo Limit

Tier-I account is mandatory for everyone who opts for NPS. Central Government employees have to contribute 10% of their basic salary. However, for everyone else, the NPS is a voluntary investment option.


Equity Allocation Rules

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.

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. Also, 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.

Withdrawals

  • Early Withdrawal and Exit rules – It is important to hold our 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.

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. Also, historical returns have been around 8-10%.

How to use the NPS calculator?

Upwardly’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. Also, the number of withdrawals are limited to 3 with each withdrawal having a gap of 5 years.

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.

 

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