The National Pension System is sold as a tax saver. For most people it now saves tax on only one of the two ways money goes into it, and it is not the one you control.
This works out what NPS actually saves you, on both tax regimes, split between your employer’s money and your own.
Your NPS at sixty
What the money becomes, and what you can actually do with it.
The two regimes, side by side
How much of each contribution actually comes off your taxable pay.
| What goes in | New regime | Old regime |
|---|---|---|
| Your employer’s money | ₹84,000 | ₹60,000 |
| Your own money | ₹0 | ₹50,000 |
| Tax saved | ₹26,208 | ₹34,320 |
This compares only what NPS saves you. It does not say which regime is better overall, because the old one charges higher rates to begin with.
What your own money is buying
The part worth thinking hardest about.
The Part Most Advice Has Not Caught Up With
NPS was sold for years on the extra slot above the ₹1.5 lakh limit. That slot still exists, but only on the old regime.
The new regime is now the default. If you never filled in a form to choose, you are on it, and the money you put into NPS yourself saves you nothing at all. What survives is your employer's contribution, and that survives on both.
Four Things Worth Knowing
- The employer part is not free money. It comes out of your total salary. The fair comparison is taking it as NPS against taking it as salary and paying tax on it, which is exactly what this works out.
- The limits differ by regime. Your employer's contribution counts up to 14% of basic on the new regime, but only 10% on the old. Anything above the limit is taxed like ordinary pay.
- Tier 2 has no tax benefit at all. Everything here is about the Tier 1 account, the one locked until sixty. If somebody opens a Tier 2 account for you saying it saves tax, be careful about the rest of their advice.
- Part of it must buy an annuity. At sixty you cannot simply take the whole balance in cash. A share has to be used to buy a monthly income for life, at whatever rates exist on that day.
Which regime you are on is worked through in old regime or new regime, and where NPS sits among the accounts you actually need is covered in the only three accounts you actually need.
This calculator is for learning. It is not personal financial advice. It works out the tax saved at the rate you pick, including the 4% cess, and ignores surcharge on very high incomes. Limits and rates are those for the tax year 2026-27 and change with Budgets, so check the current position before deciding anything. For advice about your own situation, speak to a qualified tax professional or a SEBI-registered investment adviser.