DhanPlanNPS Calculator: How to Use the National Pension System for Retirement Planning in India
By Saswata Subhra Sengupta · Published 2026-05-18 · Rates and rules checked 2026-10-02 · 8 min read
What Is the National Pension System (NPS)?
The National Pension System (NPS) is a government-sponsored, market-linked retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Unlike EPF and PPF — which offer fixed returns — NPS invests your contributions in a mix of equity, corporate bonds, and government securities, allowing your corpus to grow with the markets.
NPS is available to all Indian citizens between 18 and 70 years. You can open a Tier I (retirement) account and optionally a Tier II (voluntary savings) account. Tier I comes with a lock-in till age 60 (with partial withdrawal options), while Tier II is a flexible savings account with no lock-in.
Add my NPS Add your NPS balance and monthly contribution to see what it could grow to by 60, and the pension it buys.
The Three Asset Classes: E, C, and G
NPS offers you three asset classes to allocate your contributions across. You can choose your own allocation (active choice) or let a lifecycle fund do it automatically (auto choice).
| Asset Class | What It Invests In | Historical Returns (CAGR) | Risk Level |
|---|---|---|---|
| E (Equity) | Stock market through index funds and large-cap funds | 10–12% | High |
| C (Corporate Bonds) | Company fixed-income instruments and bonds | 8–10% | Medium |
| G (Government Securities) | Central and state government bonds | 7–9% | Low |
The auto-choice lifecycle fund automatically reduces equity exposure as you age. For example, a 30-year-old might start with 50% in E, 30% in C, and 20% in G, gradually shifting to a conservative allocation by age 60. This is the default and recommended option for most investors.
NPS Contribution vs Projected Corpus at Age 60
The table below shows how different monthly contributions can grow by age 60, assuming a balanced portfolio (50% E, 30% C, 20% G) with a blended return of approximately 10%. The calculations assume you start at age 30.
| Monthly Contribution | Years to 60 | Total Invested | Projected Corpus at 60 | Monthly Pension (40% annuity at 6%) |
|---|---|---|---|---|
| ₹2,000 | 30 | ₹7,20,000 | ~₹45,00,000 | ~₹9,000 |
| ₹5,000 | 30 | ₹18,00,000 | ~₹1,13,00,000 | ~₹22,600 |
| ₹10,000 | 30 | ₹36,00,000 | ~₹2,26,00,000 | ~₹45,200 |
| ₹15,000 | 30 | ₹54,00,000 | ~₹3,39,00,000 | ~₹67,800 |
| ₹25,000 | 30 | ₹90,00,000 | ~₹5,65,00,000 | ~₹1,13,000 |
| ₹50,000 | 30 | ₹1,80,00,000 | ~₹11,30,00,000 | ~₹2,26,000 |
The Lump Sum and Annuity Split at Exit
At normal exit (age 60), government subscribers must use at least 40% of the corpus to buy an annuity, which pays a monthly pension, and the first 60% of the corpus can be withdrawn tax-free. PFRDA's 2025 amendment lets non-government subscribers take a larger lump sum and annuitise as little as 20%; check the exit rules that apply to you, and how any lump sum above 60% is taxed, before you retire. You can choose to annuitise up to 100% if you prefer a higher pension.
This is a critical point: the money used to buy the annuity is not taxed, but the pension it pays is taxed every year at your slab rate, while the first 60% taken as a lump sum is tax-free. So NPS offers tax-free growth, a tax-free lump sum, and taxable pension income.
For example, if your corpus at 60 is ₹1 crore: you can withdraw ₹60 lakh tax-free, and use ₹40 lakh to buy an annuity that pays approximately ₹20,000 per month (₹40 lakh × 6% ÷ 12, at a 6% annuity rate, which varies by insurer and age).
NPS Tax Benefits: Maximise Your Savings
NPS offers some of the most generous tax benefits among all retirement instruments in India:
- Section 80CCD(1): Employee contributions up to 10% of salary (14% for central government) qualify for deduction under Section 80C, up to ₹1.5 lakh.
- Section 80CCD(1B): An additional deduction of ₹50,000 exclusively for NPS Tier I contributions — over and above the ₹1.5 lakh 80C limit.
- Section 80CCD(2): Employer contributions to NPS (up to 10% of salary for private, 14% for central government) are tax-free with no upper limit.
- Total potential deduction: Up to ₹1.5 lakh (80C) + ₹50,000 (80CCD(1B)) + employer contribution (80CCD(2)) = ₹2 lakh+ per year.
Lifecycle Funds: The Set-and-Forget Approach
NPS offers three lifecycle funds under the auto-choice option, each with a different equity glide path:
- Aggressive Lifecycle Fund (LC-75): Starts with 75% equity at young age, gradually reduces to 15% by 60. Suitable for those with high risk tolerance and a long horizon.
- Moderate Lifecycle Fund (LC-50): Starts with 50% equity, reduces to 10% by 60. The default option and best for most investors.
- Conservative Lifecycle Fund (LC-25): Starts with 25% equity, reduces to 5% by 60. For those nearing retirement or with low risk appetite.
The auto-choice is recommended for most investors because it removes the need to actively rebalance. However, if you are confident in managing your own allocation, the active choice gives you full control (including up to 75% in equity).
Should You Use NPS as Your Only Retirement Vehicle?
While NPS is excellent for tax efficiency and long-term growth, it should not be your only retirement instrument. The compulsory annuity (40% for government subscribers, and at least 20% for others under the 2025 rules) means you lose control over part of your corpus. Annuity rates in India are currently around 5–6%, which barely keeps pace with inflation.
A better strategy is to use NPS for its tax benefits and equity exposure, while building a parallel corpus through EPF, PPF, and mutual funds that give you full flexibility at retirement. Think of NPS as one pillar in a multi-pillar retirement plan.
Start my plan Put NPS into a complete retirement plan alongside EPF, PPF and SIPs, with income tax worked out.
Check my plan See whether your NPS, with everything else you have, is enough to last through retirement.