Tier I vs Tier II
This calculator models an NPS Tier I account — the primary retirement account, with tax benefits and withdrawal restrictions until retirement. A Tier II account is a more flexible, voluntary savings add-on with no lock-in and no tax benefit on contributions; it's a separate account most people don't need unless they specifically want that flexibility.
Tax benefits: 80CCD(1B) and 80CCD(2)
Section 80CCD(1B) gives you an extra ₹50,000 deduction for your own NPS contributions, over and above the ₹1.5 lakh Section 80C limit — but this is available only under the old tax regime. Section 80CCD(2) covers your employer's NPS contribution on your behalf, and this deduction is available under both tax regimes — up to 14% of basic salary for government employees, and a similar percentage (per the applicable regime's rules) for others.
Mandatory annuitization
At retirement (age 60), you must use at least 40% of your corpus to purchase an annuity, which then pays you a regular pension. You can choose to annuitize more than 40% if you want a larger guaranteed income stream, at the cost of a smaller upfront lumpsum.
Asset allocation
NPS invests across equity, corporate debt, and government securities. Under "active choice," you set your own mix, with equity capped at 75% (tapering down automatically as you approach retirement, typically from around age 50). Under "auto choice," the allocation shifts automatically toward safer assets as you age, without you having to manage it.
Why the corpus grows so much over long horizons
NPS is a monthly contribution scheme, so every rupee you put in compounds for a different length of time — your very first month's contribution earns returns for the entire duration until retirement, while a contribution made in your last working year barely compounds at all. This is exactly why starting early matters more than almost any other factor in this calculator: someone who starts contributing ₹10,000/month at age 25 ends up with a meaningfully larger corpus at 60 than someone who starts the same monthly amount at age 35, even though the older starter contributes for "only" ten fewer years.
Partial withdrawal and exit options
NPS allows limited partial withdrawals before retirement — up to 25% of your own contributions (not the employer's share or the returns on it), for specific reasons like higher education, a child's marriage, buying a first home, or medical treatment, and only after being in the scheme for at least three years. If you leave your job or want to exit early for any other reason, different and generally stricter withdrawal rules apply, with a higher share of the corpus needing to be annuitized than the standard 40% at normal retirement.
How NPS compares to other retirement options
Compared to the PPF, NPS offers potentially higher returns because part of the corpus can be invested in equity, but that also means the returns aren't guaranteed the way PPF's government-set rate is. Compared to a straightforward EPF/gratuity combination from employment, NPS adds an extra layer of tax-advantaged saving on top, particularly useful once you've maxed out your other 80C options.