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NPS Calculator
Know the accumulated amount from your NPS scheme at the time of your retirement.
What do you understand by NPS (National Pension System)?
NPS stands for National Pension System and is a regular income initiative by the Government of India. Earlier, it was called the National Pension Scheme. Wherein you invest a lumpsum or fixed amount of money every month. Then, at your retirement, you can withdraw up to 60% of the accumulated amount, and the rest 40% you will receive in monthly payments.
However, if the accumulated amount is equal to or less than INR 5 lakh, then the depositor can withdraw the entire amount at the time of retirement.
NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which comes under the jurisdiction of the Ministry of Finance, Government of India.
Digging deeper into the history of NPS in India, the Central government introduced this scheme in 2003. Back in that time, the scheme was only for central government employees. But later, after the enactment of the PFRDA Act, the pension scheme became the National Pension System and was made available to all citizens of India in May 2009.
Tier I and Tier II Accounts
While investing in the NPS, a unique Permanent Retirement Account Number (PRAN) is given to the account holder. PRAN acts like the golden key; only after getting the PRAN can investors open the sub accounts, i.e., Tier I and Tier II accounts. In fact, all the decisions such as Investment amount, fund management, etc. can be modified via PRAN only.
There are two accounts in the NPS, i.e., Tier I and Tier II. A Tier II account is an optional account, and you cannot open a Tier-II account directly without opening a Tier I account. Let’s look at the comparison below:
| Particulars | Tier I | Tier II |
|---|---|---|
| Meaning | It is a primary account suited for retirement planning, which comes with a lock-in period. | It is a voluntary savings account which has no lock-in period. |
| Tax Benefits | Available | Not available |
| Premature Withdrawal | Not available | Available |
| At Maturity | You can withdraw up to 60% of the accumulated amount, and the remaining 40% will be received in an annuity plan. | An annuity plan, i.e., fixed monthly installments, is not available in this account. You can withdraw the entire amount. |
| Account Maintenance Charges | Applicable | Not applicable |
What is NPS calculator?
An NPS calculator can be understood as a mathematical utility tool to calculate the accumulated amount for your NPS investment. Calculating the maturity amount for your NPS investment option using a traditional mathematical calculator is hectic. That's where Pocketful’s online NPS calculator comes to your rescue. Our online NPS calculator offers a user-friendly and free to use interface that even a 5-year-old can use it.
How does an NPS calculator work?
Like all the other investment return calculators, the NPS calculator works on the compounding interest calculator formula.
The formula is given below:
A=P(1+R/N)^NT
| A | Maturity amount at the time of retirement |
| P | Total principal amount |
| R | Interest rate on investment |
| N | Interest compounding frequency |
| T | Investment tenure |
Let’s understand it with an example.
Say Mr. X wants to invest in the NPS scheme to have a stable regular stream of income after his retirement. He consults his financial advisor and decides to invest INR 20,000 every month. Let’s assume that he will get an interest rate of 10%.
Currently, Mr. X is 25 years old. Therefore, he has 35 years left in his retirement. In this case, the investment tenure period comes out to be 35 years.
Based on the above-mentioned formula, Mr. X could expect an approximate amount of 7.5 crores at the time of his retirement.
How to use Pocketful’s online NPS Calculator?
Pocketful’s online NPS calculator is user-friendly and free to use. The following are the steps to use the calculator:
Step 1:
Enter the monthly amount that you are currently putting into an NPS scheme or planning to.
Step 2:
Enter the expected interest rate on your National Pension System investment option.
Step 3:
Select the time or the investment tenure for your NPS scheme. Voila! You’re done.
Advantages of National Pension System
- Voluntary:
The NPS scheme is a voluntary scheme, which means it is up to the choice of depositors, whether they want to invest in NPS or not. The depositor can start an NPS account anytime they want in the financial year
- Convenient:
It is very convenient to open a NPS account as the whole process is now paperless. For registration, you can visit your nearest PoP-SP (Point Of Presence – Service Provider). The online system is the quickest way to join NPS.
- Flexible:
NPS is a flexible investment option as you choose the investment amount and tenure period depending upon your convenience. Flexibility is a significant factor to consider while making investment decisions as it helps you to make the most out of your money and minimize your overall risk.
- Tax Benefits:
NPS account comes with numerous tax benefits. Investors can get a deduction of up to INR 2 lakhs by investing in the NPS. We have discussed the tax benefits in the next section.
- Regulated:
NPS is a safe investment option as the central government itself launched it. Further, NPS is regulated by PFRDA, with transparent investment norms and regular monitoring and performance reviews of the fund managers.
Tax Benefits of NPS
People who contribute to the NPS are entitled to receive certain tax deductions, which are mentioned below:
-
Under Section 80CCD(1), subject to a maximum of INR 1.5 lakhs, the employee can avail of a Tax deduction of up to 10% of their pay (Basic + DA).
-
Tax deduction of up to INR 50,000 under Section 80CCD(1B) for employees; this deduction is over and above the INR 1.5 lakhs deduction under Section 80CCD(1).
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Under Section 80CCD(2), the Employer's contribution towards the Tier -1 NPS account of an employee is eligible for a tax deduction of up to 10% of pay (Basic + DA) or 14% of salary if such a contribution is made by the Central Government.
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Self-employed people can claim a tax deduction of up to 20% of gross income under Section 80CCD(1), subject to a total limit of INR 1.5 lakhs under Section 80CCE.
