NPS Calculator: How the National Pension Scheme works

Published: October 17, 2015 at 6:19 pm

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The tax on lump sum corpus withdrawn is assumed to be zero.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!

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.

Do share if you found this useful
Share your thoughts on this topic at the  Reddit freefincal_user_forum

Reach your financial goals like a pro! Join our 1600+ Facebook Group on Portfolio Management! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
About the Author 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. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps