NPS Calculator: How the National Pension Scheme works

Published: October 17, 2015 at 6:19 pm

Last Updated on

Here is a National Pension Scheme NPS Calculator for government, corporate, and individual subscribers in Excel to enable better understanding of how the scheme works.

For government subscribers, the asset allocation is fixed: 15% in equity (E) and rest in fixed income (allocation to G – government bonds and C – corporate bonds is not known)

The tax on lump sum corpus withdrawn is assumed to be zero. Some argue that the NPS corpus is the same as gratuity for a government employee and is tax-free. Personally, I do not agree with this and shall await official confirmation (update see below). In the sheet, I have assumed that the gratuity is tax-free. Do not assume that this is true.

For corporate and individual subscribers, the asset allocation among E, G and C can be varied each year in the NPS calculator.

Also, only 40% of the corpus at the time of retirement is tax-free.

Update 3: NPS Tier 1 Equity Scheme (E) Performance – Oct 2016

Update 2: A Guide to investing in the National Pension System (NPS)

Update 1: Budget 2016: National Pension Scheme – 40% of withdrawal made tax free!

Despite this change, I still believe that one should not Invest Rs. 50,000 in NPS For Saving Tax!

Even if above gratuity interpretation is true for government employees, it makes no sense for them to invest that 50K. In any case, as of now they cannot invest on their own in tier 1. That rule has to be changed first!

Besides, the E component is invested in a large cap index. I think one can do much better than that!

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For government subscribers, 40% of the corpus is to be annuitized. Remaining is assumed to be tax-free. This is a screenshot of the memorandum from Budget 2016

National-pension-scheme

 

For corporate subscribers, 40% of total corpus at retirement is tax-free. Forty percent of the remaining corpus is assumed to be annuitized. The remaining corpus is taxable as per slab.

Here is a screenshot for the NPS calculator for corporates and individuals (click to enlarge).

Kindly note that this is not a recommendation for NPS. In fact you can use this calculator to understand why one should stay away from Corporate NPS, if You Wish to Retire ASAP!

NPS-Calculator

Download the NPS Calculator

Update 2:  NPS: Partial Withdrawal Rules 2016 are just awful! Beware.

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Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
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3 Comments

  1. I, WANT TO KNOW the details in this particular special case.

    I, paid Rs 635 as desired by G.P.O. Bangalore in June 2015.

    Unfortunately , there was a technical and administrative problem
    in uploading my details and it took more than 3 months to happen
    and by that time I, crossed 60 yrs on 24-08-1915. they informed me
    that ,I,have to collect my refund of Rs 635 /- ,which I, flatly REFUSED
    as there was no mistake from my side . they referred my case to concerned authorities and now a special permission has been given to
    pay the ONE TIME amount for the NPS fund.

    Now , I, want to know how much of amount I, have to pay to get
    a monthly pension of Rs 5000 /-. Nobody is able to inform/ guide me.
    Please inform me at the earliest.

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