The National Pension Scheme (NPS) is a popular retirement-focused investment scheme in India that provides long-term financial security. But when you retire, what happens to the money you’ve invested in NPS? That’s where annuity comes into play.
In this article, we’ll break down what annuity in NPS is, how it works, your annuity options, and everything you need to make an informed retirement decision.
To open an NPS account, check account status, or access calculators:
👉 https://www.npscra.nsdl.co.in
What is Annuity in NPS?
Annuity in NPS refers to a financial product you purchase at the time of retirement using a portion of your NPS corpus. It provides you with a regular monthly pension after retirement — essentially converting your accumulated savings into a stream of income for life.
In simple terms:
Annuity = Regular monthly income after retirement, bought using your NPS funds.
NPS Annuity Calculator Code 2025:
NPS Annuity Calculator
How Annuity Works in NPS
Under the NPS Tier 1 account, when you reach the age of 60, you’re allowed to:
- Withdraw up to 60% of your accumulated corpus as a lump sum.
- Mandatory 40% must be used to purchase an annuity from a registered Annuity Service Provider (ASP).
Complete list of IRDAI-approved annuity providers for NPS:
👉 https://www.npscra.nsdl.co.in/annuity-service-providers.php
Let’s look at an example:
Suppose your NPS corpus at retirement is ₹20 lakhs:
- ₹12 lakhs (60%) can be withdrawn tax-free (lump sum).
- ₹8 lakhs (40%) must be used to buy an annuity to receive monthly pension payments.
Your annuity income will depend on the annuity plan, interest rate, and your age.
NPS Withdrawal & Exit Rules
NPS Withdrawal & Exit Rules
Official guidelines on NPS exit, withdrawal, and annuity rules:
👉 https://www.pfrda.org.in
Types of Annuity Options in NPS
NPS offers multiple annuity options to suit different retirement needs:
- Life Annuity
- Pension for life. Stops on death.
- Pension for life. Stops on death.
- Joint Life Annuity
- Pension continues for spouse after your death.
- Pension continues for spouse after your death.
- Annuity with Return of Purchase Price (ROP)
- Pension for life; after death, the original amount (used to buy annuity) is returned to nominee.
- Pension for life; after death, the original amount (used to buy annuity) is returned to nominee.
- Increasing Annuity
- Pension increases annually by a fixed percentage.
- Pension increases annually by a fixed percentage.
- Annuity for Fixed Period (5, 10, 15, 20 years)
- Pension for a fixed term. After the term ends, no payouts.
- Pension for a fixed term. After the term ends, no payouts.
Estimate your monthly pension based on corpus and annuity type:
👉 https://cra-nsdl.com/CRAOnline/aspQuote.html
Pro Tip: If leaving a legacy is important, consider ROP options. If maximizing pension is the priority, opt for a non-ROP plan.
Who are the Annuity Service Providers (ASPs) in NPS?
The annuity plans are offered by IRDAI-approved life insurance companies. Some top annuity service providers in NPS include:
- LIC (Life Insurance Corporation of India)
- SBI Life
- HDFC Life
- ICICI Prudential
- Kotak Life
- Bajaj Allianz
Annuity Service Providers (ASPs) List in NPS
Complete list of IRDAI-approved annuity providers for NPS:
👉 https://www.npscra.nsdl.co.in/annuity-service-providers.php
You can compare ASPs on the CRA (Central Recordkeeping Agency) portal to see the best annuity rates.
Is Annuity from NPS Mandatory?
Yes — but only for Tier 1 accounts.
- If your total NPS corpus exceeds ₹5 lakhs, 40% of it must be converted into annuity.
- If corpus is below ₹5 lakhs, you may withdraw the full amount without annuity.
For Tier 2 NPS accounts, no annuity purchase is needed, as it functions more like a savings account.
NPS Annuity vs Lump Sum Withdrawal
| Feature | Lump Sum (60%) | Annuity (40%) |
| Withdrawal Time | One-time at retirement | Monthly (till death) |
| Tax Implication | Tax-free | Taxable as income |
| Flexibility | Can invest/use freely | Fixed monthly income |
| Risk | Market-dependent (if reinvested) | Low (guaranteed income) |
Tax on Annuity from NPS
Here’s what you need to know:
- Lump sum (60%): Fully tax-free under Section 10(12A).
- Annuity income: Treated as income and taxed as per your income tax slab.
Note: No TDS is deducted by the ASP, but you must declare the pension in your ITR.
❓ FAQs on Annuity in NPS
🔹 What happens to NPS after retirement?
You can withdraw up to 60% tax-free and use 40% to buy an annuity. You start receiving monthly pensions from the annuity provider.
🔹 How much pension will I get from NPS?
Depends on your corpus, annuity provider, and the type of annuity chosen. Use an NPS annuity calculator to estimate.
🔹 Can I withdraw NPS without annuity?
Only if the total corpus is less than ₹5 lakhs. Otherwise, 40% annuity purchase is mandatory.
🔹 Which is the best annuity plan for NPS?
Plans with return of purchase price are popular for those wanting to leave money for nominees. Compare rates on the CRA or ASP websites.
🔹 Can I change my annuity provider?
Once the annuity is purchased, you cannot change the ASP or the plan. So choose wisely at the time of purchase.
Conclusion
Annuity in NPS plays a critical role in ensuring a steady stream of income after retirement. While it may seem complex at first, understanding the options and planning early can help you make the most of your pension.
✅ Choose the right annuity plan based on your family, financial goals, and retirement lifestyle.
✅ Compare rates across Annuity Service Providers before making a final decision.
✅ Remember, this decision is one-time and irreversible — so plan wisely.
Want to plan your NPS retirement better? Use the official NPS calculator to estimate your pension and annuity income today!