National Pension System corpus + annuity split.
Corpus at retirement
₹2.28 Cr
Tax-free lump-sum: ₹1.37 Cr · Monthly pension: ₹45.59K
Lump-Sum (60%)
₹1.37 Cr
Monthly Pension
₹45.59K
The National Pension System mandates that at retirement, a minimum 40% of the corpus must purchase a lifetime annuity; the remaining 60% is tax-free lump-sum (Section 10(12A)). Contributions are eligible for ₹50,000 additional deduction under 80CCD(1B), on top of 80C.
Corpus = FV of monthly SIP at chosen equity/debt mix return. Pension = (Annuity Corpus × Annuity Rate) ÷ 12.
Three layers: Section 80C up to ₹1.5 lakh, plus an exclusive ₹50,000 deduction under 80CCD(1B), plus employer contribution up to 10% of basic salary under 80CCD(2). The 80CCD(1B) ₹50k is the most valuable — it's over and above the 80C limit.
Active Choice allows up to 75% in equity (capped at 75% till age 50, then tapered). Auto Choice offers Aggressive (75%), Moderate (50%) or Conservative (25%) lifecycle funds. Equity is mostly Nifty/Sensex index — low cost but limited alpha.
At age 60, 60% of corpus is withdrawn tax-free as lump sum. The remaining 40% must compulsorily buy an annuity — the annuity income is then taxable at slab rate. The forced 40% annuity drag is NPS's biggest weakness vs pure equity funds.
NPS wins on tax savings (especially the 80CCD(1B)). Mutual funds win on flexibility, no forced annuity, and higher equity cap. For most investors a hybrid — NPS for the ₹50k extra deduction + equity SIPs for the rest — is optimal.