Question 1

How is NPS corpus calculated at retirement?

Accepted Answer

NPS corpus is calculated using the monthly contribution (both employee and employer) growing at an assumed annual return rate, compounded monthly. At retirement (age 60), up to 60% of the corpus can be withdrawn as a lump sum, which is tax-free. The remaining 40% must be used to purchase an annuity that provides a monthly pension. The annuity return rate is typically around 6% per annum.

Question 2

What is the NPS contribution limit for tax benefits?

Accepted Answer

Employee contributions to NPS Tier I up to 10% of salary (basic + DA) qualify for deduction under Section 80CCD(1) within the overall ₹1.5 lakh 80C limit. An additional deduction of up to ₹50,000 is available under Section 80CCD(1B) exclusively for NPS. Employer contributions up to 10% of salary (14% for central government employees) are deductible under Section 80CCD(2) over and above the 80C limit.

Question 3

How much can I withdraw from NPS at retirement?

Accepted Answer

At age 60, you can withdraw up to 60% of your NPS corpus as a lump sum. This 60% withdrawal is completely tax-free under the current tax laws. The remaining 40% must be used to purchase an annuity plan from an IRDAI-registered insurer, which will provide you with a regular monthly pension. The annuity payout depends on the prevailing annuity rates at the time of retirement.

Question 4

What is the NPS asset allocation or auto choice?

Accepted Answer

NPS offers two investment options: Active Choice and Auto Choice (Lifecycle Fund). Under Auto Choice, the equity allocation is determined by your age using a predefined formula — higher equity when young, gradually reducing as you approach retirement. Under Active Choice, you can choose your own allocation: up to 75% in Equity (E), up to 100% in Corporate Bonds (C), and up to 100% in Government Securities (G). Equity exposure above 75% is not permitted under current NPS rules.

Question 5

Is NPS better than PPF?

Accepted Answer

NPS and PPF serve different purposes. NPS offers market-linked returns with potentially higher growth but carries market risk and requires 40% annuity purchase at retirement. PPF provides sovereign-guaranteed fixed returns with complete tax-free withdrawal. NPS has additional tax benefits (₹50,000 under 80CCD(1B) and employer contributions under 80CCD(2)). Many investors use both: NPS for equity exposure and additional tax savings, PPF for the safe, tax-free core corpus.

Question 6

Can I withdraw NPS before 60?

Accepted Answer

Partial withdrawals from NPS are allowed after 3 years of account opening for specific purposes like children's education, marriage, purchase/construction of house, or medical treatment. You can withdraw up to 25% of your own contributions for these purposes, with a maximum of 3 withdrawals during the entire tenure. Premature exit (before 60) is allowed after 5 years, but 80% of the corpus must be used for annuity purchase and only 20% can be withdrawn as lump sum.

Question 7

Is NPS tax-free at maturity?

Accepted Answer

The 60% lump sum withdrawal from NPS at maturity (age 60) is tax-free as per the Finance Act, 2019. The 40% corpus used for annuity purchase is not taxed at the time of investment. However, the monthly pension received from the annuity is fully taxable as per your income tax slab. Annuity income does not have any exemption and must be declared under "Income from Other Sources".

Question 8

Who can open an NPS account?

Accepted Answer

Any Indian citizen between 18 and 70 years of age can open an NPS account. NRI, OCI, and PIO cardholders are also eligible. The account can be opened with a minimum initial contribution of ₹500 for Tier I and ₹250 for Tier II. Aadhaar and PAN are required for KYC. Government employees, private sector employees, and self-employed individuals can all subscribe to NPS.

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NPS Tax Benefits

Section 80CCD(1)

Section 80CCD(1B)

Section 80CCD(2)

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