The National Pension System (NPS) is one of India's cheapest retirement products. But most people do not know what it will actually pay them each month. This guide shows the math step by step, so you can do what an NPS calculator does yourself.
How NPS pays you at 60
At retirement (age 60), your Tier 1 corpus is split:
- Up to 60% lump sum — tax-free.
- At least 40% must buy an annuity — this pays your monthly pension, and the pension is taxed at your slab.
If your corpus is ₹5 lakh or less, you can withdraw all of it.
The 4 inputs an NPS calculator uses
Worked examples
We assume 10% yearly return on contributions and a 6% annuity rate. These are assumptions, not guarantees.
| Investor | Monthly | Years | Corpus at 60 | 60% lump sum | Monthly pension (40% at 6%) |
|---|---|---|---|---|---|
| Age 30 | ₹5,000 | 30 | ~₹1.14 crore | ~₹68 lakh | ~₹22,800 |
| Age 35 | ₹10,000 | 25 | ~₹1.34 crore | ~₹80 lakh | ~₹26,800 |
📌 What if you annuitise more? The age-30 investor putting 60% into annuity (and taking 40% lump sum) would get ~₹34,200 a month, but only ~₹45.6 lakh as lump sum.
The formula (do it yourself)
Corpus = M × [((1 + r)^n − 1) ÷ r] × (1 + r), where M = monthly contribution, r = yearly return ÷ 12, n = months.
Monthly pension = Corpus × annuity share × annuity rate ÷ 12.
Tax benefits of NPS (FY 2025-26)
| Benefit | Old regime | New regime |
|---|---|---|
| Own contribution under 80CCD(1), within ₹1.5L of 80C | Yes | No |
| Extra ₹50,000 under 80CCD(1B) | Yes | No |
| Employer contribution 80CCD(2) | Up to 10% of salary | Up to 14% of salary |
| 60% lump sum at 60 | Tax-free | Tax-free |
| Pension | Taxed at slab | Taxed at slab |
Compare your regime with our tax calculator and read NPS vs ELSS.
Tier 1 vs Tier 2
- Tier 1: the main pension account, locked until 60 (partial withdrawals for specific needs), tax benefits apply.
- Tier 2: optional, withdraw anytime, no tax benefit for most people. Works like a low-cost mutual fund.
How to pick your NPS settings
Is NPS enough for retirement?
For most people, no. Combine NPS with mutual fund SIPs, EPF and PPF. Use the SIP calculator to plan the gap, and see how much money you need to retire in India.
Your action plan
FAQs
How much pension will I get from NPS?
It depends on your corpus and annuity rate. Example: ₹5,000 a month for 30 years at 10% gives about ₹1.14 crore; putting 40% into a 6% annuity gives roughly ₹22,800 a month.
Is the NPS lump sum tax-free?
Yes. Up to 60% of the corpus withdrawn at 60 is tax-free. The monthly pension from the annuity is taxed at your income tax slab.
Can I withdraw 100% of NPS at 60?
Only if your total corpus is ₹5 lakh or less. Otherwise at least 40% must be used to buy an annuity.
Does NPS give tax benefit in the new regime?
Only the employer contribution under Section 80CCD(2), up to 14% of salary. The extra ₹50,000 under 80CCD(1B) is available only in the old regime.
What return does NPS give?
NPS returns are market-linked and not guaranteed. They depend on your equity, corporate bond and government bond mix and your pension fund manager.
Sources and update note
Based on PFRDA NPS exit rules and Income Tax rules for FY 2025-26. Checked 13 Oct 2026. Return (10%) and annuity rate (6%) are assumptions for illustration; actual values vary.
Important disclaimer
This article is for education only and is not investment or tax advice. NPS returns are market-linked. Rules may change; verify with PFRDA and a qualified adviser before deciding.
Did you find this useful?
