NPS Calculation: Every individual wants to generate a steady stream of income during retirement, accompanied by a lump sum payment which ensures sustenance for comfortable living during old age. However, such a system requires precise planning, and without it, there is a high possibility of not being able to gather a substantial pension and sum payment. In such circumstances, the National Pension System (NPS) can be highly effective for retirement. Let's understand NPS in detail first.National Pension SystemThe selected retirement savings plan is termed the National Pension System (NPS). It is governed by the subsidiary of the PFRDA (Pension Fund Regulatory and Development Authority). This scheme allows for defined regular investment periods for adults within their active working years. In this way, at least 40 percent of the corpus has to be converted to an annuity which will pay out a monthly income post retirement.Moreover, the remaining balance of 60% can be withdrawn in lump sum payment upon retirement. Unlike traditional schemes with fixed returns, NPS contributions are invested in debts or equities depending on the age of the contributor and NPS scheme chosen so the returns are market-linked.There are two ways in which one can invest in NPSUnder this provision, any Indian citizen can save regularly for his post-retirement financial goals. The NPS is managed by the Pension Fund Regulatory and Development Authority (PFRDA). Under NPS, both Tier 1 and Tier 2 accounts can be opened. You have the option to open a Tier 2 account after having a Tier 1 account. Tier 1 is a primary pension account. There are some restrictions on withdrawals in it, it is designed for retirement. It is possible to receive an exemption under Section 80C of the Income Tax Act by investing in it.NPS benefits the userAs per Section 80C of the Income Tax Act, for NPS you can have a total limit of Rs 1.5 lakh exemption. Additionally, one can also avail another separate exemption of Rs 50,000 under 80CCD (1B). Thus, effectively, one can claim total exemption of up toRs 2 lakh.What will your pension payout be in case you invested 5000 every month?This means if you invest 5000 every month and your age is 18 years now and you are an aggressive investor. In this case, a maximum of 14 percent return can be achieved. In case you choose to allocate 40 percent of the corpus for annuity purchase, then the total investment shall be 25.2 lacs which value of gain in 14.7 crore and hence total maturity value will be 14.95 cr. Which means monthly Pension Rs 3,29,000. Out of which if you fall in the 20% tax slab, would save tax of roughly 5,04,000.
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