National Pension is one of the popular tax-saving schemes. In this post we look at various NPS Calculator and how NPS calculators work.

National Pension scheme calculator works on the below few factors:

1. Age
2. Amount of contribution made
3. Rate of return as prescribed by government for that given period of time.

So we will discuss now how each of these factors affect NPS calculation.

1. Age of the interested investor: Any contribution made under NPS scheme can be withdrawn only when the investor reaches his retirement age i.e. 60 years. Thus the earlier the investor starts to contribute under the scheme the more the person is going to earn.
2. Amount of contribution made: Under NPS scheme, the investor makes annual contribution (Note: An individual can break the annual contribution into monthly or quarterly or half monthly contribution). The bigger the contribution made the larger would be the accumulated value of NPS scheme.
3. Rate of Return: The rate of interest percentage on NPS is provided by Government of India on annual basis. This rate of interest is released based on government’s policy and decision and market conditions. As the contributions made under the scheme are invested in equity, corporate debt and government securities and thus the rate of interest varies from year to year basis. But considering the past trend, the scheme has earned a rate of interest varying in between 12% to 14%.

There are many NPS calculators of various NPS scheme providers and NPS government sites which can easily be found across the internet. These calculators are based on assumed rates of interest  and thus provides only close estimated values. These calculators are very easy to use.

Please find below few examples of these calculators:

• http://www.npstrust.org.in/PENSIONCALC/Pension_Calculator.html
• http://www.hdfcsec.com/Final-NPS-Calculator/nps_calculator.html
• https://www.sbi.co.in/portal/web/home/new-pension-system-nps
• https://www.icicibank.com/Personal-Banking/account-deposit/pension-schemes/national-pension-system/index.page?

The calculator only provides estimation and not the accurate values. A few reason for this fluctuations are:

• The changing effect of tax laws on investment schemes cannot be considered
• The rate of return keeps fluctuating with any fluctuation in the market

National Pension Scheme Details

NPS was first introduced in 2008 but the scheme got popular when during Budget of 2015-16, the proposal gained an added tax benefit attached to its existing limits. Now-a-days NPS is one of the popular tax saving and retirement benefit investment scheme.

The below are the details of NPS scheme

Who can invest under NPS scheme?

• All resident Indian’s can opt for this investment scheme on voluntary basis. But the scheme is mandatory for employees of central government (except armed forces) appointed on or after 1 January 2004.
• The age for enrollment for NPS scheme should be in between 18 and 60.

How to open an NPS account?

Now-a-days many recognized banks and institution provide the NPS account opening and maintaining facility. For opening an NPS account a subscriber needs obtain Permanent Retirement Account Number (PRAN ) number, below is the process of obtaining PRAN number:

• Documents to be Submitted for registration and obtaining the PRAN and opening an account : Passport Photo, Address Proof, ID Proof, PAN Card and NPS form to be filled and provided.

(PRAN will be allotted within 7-10 working days.)

Once PRAN is obtained the individual can open an NPS account and then start contributing.

A few of NPS service provider are: Axis Bank Ltd., Central Bank of India, ICICI Bank Limited, Kotak Mahindra Bank Limited, etc.

Here is a detailed post on How to Invest in NPS

NPS scheme Guidelines

NPS scheme is managed by Pension Fund Regulatory and Development Authority (PFRDA). Thus all the guidelines are released by PFRDA on periodic basis.

The below are few of important guidelines to be followed by the NPS subscribers:

• Every Individual who opens NPS account must make minimum of annual contribution of Rs.6000 each year in each of his or her NPS account.
• The minimum amount per contribution must be more than or equal to Rs.500.
• The individual subscriber must make minimum one number of contributions each year.
• If the subscriber is unable to contribute the minimum annual contribution or defaults on any guidelines as subscribed by the government, then the account would be discontinued and temporarily closed.

In such a case, the NPS subscriber needs to pay a default penalty of Rs.100 per year of such default in order to re-activate the account. The subscriber also needs to pay the minimum contribution, along with penalty due.

How to withdraw from NPS Account:

• In case the subscriber chooses to exit from the NPS scheme before 60 years of age, then the subscriber needs to invest 80% of accumulated saving to purchase a life annuity from an Insurance Regulatory and Development Authority (IRDA) regulated life insurer. The remaining 20% is eligible for withdrawal as a lump sum.
• In case the subscriber chooses to exit from the NPS scheme after age 60 years but before 70 years then the subscriber is required to invest at least 40% of pension wealth to purchase an annuity and the remaining 60% will be repaid as a lump sum.

In the case of government employees, the annuity provides for pension for the lifetime of the employee and his dependent parents and spouse at the time of retirement.

• In case the NPS subscriber does not exit the system at or before 70 years, account would be closed and the accumulated funds under NPS scheme would be transferred to the subscriber in a single pay out. And in case the subscriber dies, the nominee of the NPS subscriber would receive the entire NPS accumulated amount.

TAX Benefit

Under NPS scheme any contribution made by the subscriber can be claimed as tax deduction. The tax deduction can be claimed under below sections.

1. Under Section 80CCD(1): Employee who are employed in private or government owned companies can contribute and claim a contribution made up to 10% of basic + DA. The upper limit is restricted to Rs.1.5 Lac
2. Under Section 80CCD(2): Where individuals who are employed in private or government owned companies and their employer contribute NPS amount on their employees’ behalf @ 10% of basic + DA , then the employee can claim the amount under the said section.
3. Under Section 80CCD(1B): Individual can make an additional contribution @20% of their gross total income.

National Pension scheme because of its better tax benefits and good retirement benefit plans is getting popular among the crowd and is considered to be a good option to invest and save taxes. NPS scheme provides dual benefit of tax saving and investment returns which makes the scheme a win-win plan.

To Read more about NPS, you can continue reading on National Pension Scheme – All you Need to Know.

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