National Pension System (NPS) Returns

Know how NPS returns contribute to a financially secure retirement with the National Pension Scheme. Get details on NPS Tier 1 and Tier 2 returns, interest rates, and taxation.
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NPS returns
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4 mins
17-June-2025

Retirement planning in India can feel overwhelming without clarity on the right investment tools. Among the available options, the National Pension Scheme (NPS) stands out as a reliable, government-backed solution. It offers market-linked growth, tax benefits, and long-term savings for a secure retirement. NPS returns vary based on the asset mix and fund performance but have historically been competitive. If you're exploring ways to build a retirement corpus, tracking national pension scheme returns is a smart move.

 

Benefits Offered by the National Pension Scheme

1. Tax exemption

One of the primary benefits of investing in NPS is tax exemption. Investors can claim a tax deduction on their contributions made during the year, up to a maximum of Rs. 1.5 lakhs under Section 80CCE of the Income Tax Act, 1961. An additional deduction of Rs. 50,000 is available under Section 80CCD (1B).

2. Returns
NPS investments offer market-linked growth, and individuals can receive a regular pension after retirement. NPS returns vary based on fund manager performance and asset allocation. Historically, NPS returns have been competitive compared to other long-term investment options.

3. Simple exit rules

NPS provides flexible exit options. After the age of 60, investors can withdraw up to 60% of the accumulated corpus as a lump sum, while the remaining 40% is used to buy an annuity that ensures a steady post-retirement income.Types of NPS Account


1. Tier I Account

  • The National Pension Scheme (NPS) account is a mandatory account for all employees.

  • NPS offers tax exemption up to Rs. 2 lakh p.a. (Under 80C and 80CCD).

  • The minimum NPS contribution for opening an account is Rs. 500

  • There is no limit on the maximum NPS contribution.

2. Tier II Account

  • The National Pension Scheme (NPS) Tier II account is an optional for employees.
  • Withdrawals from NPS NPS Tier-II account are permitted.
  • Tax exemption is 1.5 lakh for government employees and none for other employees.
  • The minimum NPS contribution for opening an account is Rs.1,000
  • There is no limit on the maximum NPS contribution.

NPS Returns for Tier I & Tier II Accounts

Here are the NPS interest rates of Tier I and Tier II accounts as of December 31, 2022.

1. NPS Returns for Tier I Accounts

Asset Classes Equity (Class E) Corporate Bonds (Class C) Government Bonds (Class G) Alternate Assets (Class A)
1-year returns (%) 15.33-18.81% 12.46-14.47% 12.95-14.26% 3.98-16.73%
5-year returns (%) 13.11-15.72% 9.27-10.15% 10.29-10.88% NA
10-year returns (%) 10.45-10.86% 10.05-10.64% 9.57-10.05% NA


2. NPS Returns for Tier II Accounts

Asset Classes Equity Corporate Bonds Government Bonds
1-year returns (%) 15.19-17.92% 12.71-16.36% 12.61-13.42%
5-year returns (%) 13.05-15.83% 9.55-10.17% 10.40-12%
10-year returns (%) 10.35-10.58% 9.86-10.60% 9.59-10.07%

How to Calculate NPS Returns

To calculate NPS returns, you can use NPS trust online calculator. The calculator will ask you to enter the monthly amount you want to invest, your current age, and the expected rate of return.

Who should invest in NPS?

NPS is suitable for individuals who are looking for a long-term investment option with retirement planning in mind. Additionally, it is suitable for individuals who are comfortable with market-linked returns and who have a moderate to high-risk appetite.

Step by Step Process to Open an NPS Account

1. Offline Process

To open an NPS Account offline, visit the nearest Point of Presence (POPs) authorized by PFRDA. These are specific banks and financial institutions providing NPS services. At POPs, you can subscribe to the NPS Scheme, make changes, and access related services. Just fill out the form with basic details and submit essential KYC documents like Aadhar card and PAN card.

2. Online Process

  • Click on 'Registration' and choose 'Register with Aadhaar' option.
  • Type your Aadhaar Number and click on the "Generate OTP" option.
  • You will receive the OTP on your registered mobile number.
  • Enter the OTP, along with your personal, nomination, and bank details.
  • After the successful submission, you will receive a Permanent Retirement Allotment Number (PRAN).
  • Click on the 'e-signature' option, and you will receive another OTP.
  • Enter OTP to verify your signature and make the payment, and you're done!

Tax on NPS Returns

Contributions to the NPS scheme are eligible for tax benefits under Section 80CCD(1). Salaried individuals can claim deductions up to 10% of their salary (Basic + DA), while self-employed individuals can claim up to 20% of their gross income—both within the Rs. 1.5 lakh limit under Section 80CCE.

Additional deductions are available under Section 80CCD(2) for employer contributions. Government employees can claim up to 14% of salary, and private-sector employees can claim up to 10% (old regime) or 14% (new regime). This benefit is over and above the Rs. 1.5 lakh limit and does not apply to self-employed individuals.

Conclusion

The National Pension Scheme (NPS) provides a simple solution for retirement planning, whether through an offline process at authorized Points of Presence or online registration via Aadhaar, opening an NPS account is easy. With an emphasis on long-term financial planning and market-linked returns, NPS is a practical choice for a secure retirement future.

For a more balanced approach, consider complementing your NPS contributions with the stability and guaranteed returns of a fixed deposit. This helps diversify your retirement portfolio and offers a reliable income source. 

Fixed deposit variants

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Benefits of merging EPFO accounts

  1. Funds consolidation: Merging different EPFO accounts puts all your Provident Fund (PF) savings into one account. This simplifies tracking and managing your retirement savings, giving you a clear picture of your PF investment.
  2. Easy withdrawals: With a single, unified account, withdrawing your PF funds becomes straightforward. Whether it is for retirement, medical emergencies, or home purchases, having just one account eliminates the hassle of dealing with multiple accounts and paperwork, making the withdrawal process easier.
  3. Less administrative hassle: Handling one EPFO account is simpler and less complicated than managing multiple accounts. This consolidation minimises administrative challenges, allowing individuals to stay organised and concentrate on their financial objectives more easily.

Conclusion

EPFO is very useful for efficient PF account management. Merging UAN of two different EPF accounts provides benefits like simplified management and uninterrupted interest earnings. It is essential to maintain accurate details, monitor your balance, and prioritise account security after the merger.

FAQs

What is the average return of NPS?

The National Pension System (NPS) typically delivers annual returns ranging from 9% to 12%, depending on the investor’s asset allocation and fund performance. As per ICICI Bank, Tier 1 equity investments have shown average returns of 10.5% over 1 year, 9.8% over 3 years, and 11.2% over 5 years. According to Groww, equity investments in NPS have yielded 15.33% to 18.81% in 1 year and 13.11% to 15.72% over 5 years.

How much return can I expect from NPS?

Returns from NPS generally range between 9% and 12%, depending on how your investment is distributed among equities, corporate bonds, and government securities. The performance of each asset class influences the final return, with equities offering higher potential returns but also higher risk.

Is NPS return taxable?

At retirement, up to 60% of the NPS corpus withdrawn as a lump sum is tax-free, and the amount used to buy an annuity is also exempt from tax. However, the regular pension received from the annuity is taxable as per the individual's applicable income tax slab.

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Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.