How it works & FAQs
The math behind the numbers, plus answers to the questions we hear most often.
What is the additional ₹50,000 NPS deduction?
Section 80CCD(1B) allows an exclusive NPS deduction of ₹50,000 over and above the ₹1.5L Section 80C limit. At the 30% tax slab this saves ₹15,600 annually — a benefit unique to NPS, not available for PPF or ELSS.
What is the 60/40 rule in NPS?
PFRDA mandates that at retirement, a maximum of 60% of the corpus can be withdrawn as a tax-free lump sum. The remaining minimum 40% must be used to purchase an annuity to fund a monthly pension. Exception: if the corpus is under ₹5 lakh, 100% can be withdrawn.
Is the monthly pension (annuity income) taxable?
Yes — the monthly pension received from the annuity is taxable at your income slab rate. The 60% lump sum withdrawal is fully tax-free. NPS is considered "partially EEE": contributions and growth are tax-exempt, but annuity income is taxable.
NPS or PPF — which is better?
NPS is market-linked (higher potential corpus, higher risk), while PPF is government-guaranteed (EEE status, risk-free, 7.1% currently). NPS is better for higher corpus goals with equity exposure; PPF is simpler with full tax-free maturity. Most financial planners recommend both.
Can I exit NPS before retirement?
After 5 years: 80% must go to annuity and only 20% can be withdrawn as lump sum. Partial withdrawal of up to 25% is allowed after 3 years for specific purposes (children's education, home purchase, medical treatment). Early exit rules are stricter than PPF or EPF.
What is the annuity share at maturity?
PFRDA mandates a minimum 40% annuity share — meaning at least 40% of your retirement corpus must be used to buy an annuity that pays a monthly pension. You can increase this up to 100% if you prefer more monthly income over a lump sum. The remaining portion (up to 60%) is withdrawn tax-free. If the total corpus is under ₹5 lakh, you can take 100% as lump sum regardless of this setting.
What is the annuity rate and how is it determined?
The annuity rate is the annual return paid by the annuity provider (insurance company) on the corpus you invest. This translates into your monthly pension: monthly pension = annuity corpus × annuity rate ÷ 12. Typical rates offered by life insurers range from 5% to 9% depending on your age at retirement, annuity type (life, joint, with return of purchase price), and the insurer. Rates are locked in at the time of purchase — there is no market-linked variability after purchase.