NPS Premature Withdrawal

NPS Premature Withdrawal Meaning and Eligibility

Premature withdrawal from theNational Pension Scheme means closing the pension account before the subscriber becomes eligible for a normal exit. Normal exit eligibility depends on the subscriber category and the applicable scheme. For Corporate Sector subscribers, it is linked to superannuation or retirement, and completing 15 years of subscription alone does not qualify for it. The All Citizen Model has its own exit conditions, including the 15 year option where permitted. An exit before the applicable eligibility event is a premature exit.

For government-sector subscribers, premature exit generally refers to exit before the applicable age of superannuation or retirement. However, certain exits, including specified cases of physical incapacitation, bodily disability or discharge from service, may be treated as normal exits under the applicable regulations and service rules.

At premature exit, the annuity requirement depends on the accumulated pension wealth and the applicable rules. For the Corporate Sector, a corpus of ₹5 lakh or less permits full lump sum withdrawal. Above ₹5 lakh, up to 20% may be taken as a lump sum and at least 80% must be used to buy an annuity.

A partial withdrawal, by contrast, leaves the account active and allows a limited amount for specified purposes. These rules apply to the Tier I account. 

TheTier II account generally permits withdrawals without the Tier I restrictions, although closure of the Tier I account also closes the Tier II account.

NPS Exit and Withdrawal Rules After December 2025

The applicable framework rests on the following instruments, and the consolidated Exit Regulations were last updated on 20 July 2026.

Income tax references changed separately. The Income Tax Act, 2025 replaced the Income Tax Act, 1961 from 1 April 2026. Sections 123 and 124 and Schedules II and III now carry the provisions earlier found in Sections 80C, 80CCD and 10(12A).

NPS Premature Exit Rules 2026

Premature exit rules differ between non government and government subscribers in the categories covered and the events that qualify.

Premature Exit for Non Government Subscribers

Non government subscribers under the All Citizen Model and the Corporate Sector can close the account before the vesting period without completing a minimum subscription period. The earlier five year lock in was removed in December 2025. The split between lump sum and annuity depends on the corpus on the date the exit request is initiated.

The annuity can start immediately and does not wait for age 60. Deferment of benefits is not allowed at premature exit.

1. Premature Exit for Government Sector Subscribers

   For Central Government and Central Autonomous Body subscribers, premature exit generally applies when a subscriber resigns or is dismissed or removed from service before superannuation or retirement. Other service-related exits must be classified according to the applicable service rules and PFRDA regulations. 

   For government-sector subscribers, premature exit generally permits full withdrawal where the accumulated pension wealth is ₹5 lakh or less. Above ₹5 lakh, up to 20% may be withdrawn as a lump sum and at least 80% must be used to purchase an annuity, subject to the applicable service rules and regulatory conditions. 

   At normal exit, the standard option for government-sector subscribers is to withdraw up to 60% as a lump sum and use at least 40% to purchase an annuity. Alternative options apply depending on the accumulated pension wealth, including full withdrawal for a corpus of ₹8 lakh or less. 

2. Subscribers Who Joined NPS After Age 60

   There is no minimum vesting period for All Citizen Model subscribers who join NPS after age 60. They may opt for normal exit at any time, and premature exit does not apply to this category. If the accumulated pension wealth is ₹12 lakh or less, they may withdraw 100% as a lump sum through SLW or SUR, or withdraw up to 80% as a lump sum, with at least 20% used to purchase an annuity. Above ₹12 lakh, up to 80% may be withdrawn as a lump sum and at least 20% must be used to purchase an annuity. 

3. What Changed From the Earlier Premature Exit Rules

   Parameter	Earlier rule	Rule after December 2025
   Minimum subscription for premature exit, non government	5 years	Removed
   Full withdrawal limit on premature exit	₹2.5 lakh	₹5 lakh
   Lump sum on premature exit above the limit	Up to 20%	Up to 20%, unchanged
   Normal exit eligibility, All Citizen Model	Age 60	15 years of subscription, or age 60, whichever is earlier, under the applicable All Citizen Model common-scheme rules; other schemes may have a different vesting period
   Minimum vesting period for All Citizen Model subscribers joining after age 60	3 years	Removed
   Maximum exit age	75 years	85 years

Types of NPS Exit and Withdrawal

The table below compares premature withdrawal with other ways to take money out of a Tier I account.

The All Citizen Model follows its own normal exit conditions, which include the 15 year option where permitted. 

Premature Exit Illustrations

The amounts below apply to the 20% lump sum and 80% annuity split above the ₹5 lakh limit.

Note: The figures are for illustrative purposes only and are subject to applicable NPS exit rules. 

Premature Exit or Wait for Normal Exit

Completion of 15 years qualifies a subscriber for normal exit only where the applicable scheme and subscriber category permit it, and it is not a universal rule for all non government subscribers. For an eligible Corporate Sector subscriber, a ₹7 lakh corpus at premature exit permits up to ₹1.4 lakh as a lump sum and requires at least ₹5.6 lakh for an annuity. At normal exit, a corpus of ₹7 lakh may qualify for a 100% lump sum under the applicable slab, since it is below ₹8 lakh.

Subscribers who need funds earlier but intend to continue can use partial withdrawal or a loan against a lien on the account. Both keep the account active. Subscribers who wish to add a guaranteed income source to the NPS corpus can also look atpension plans from private insurers.

NPS Partial Withdrawal Rules

Partial withdrawal gives limited access to the Tier I corpus while the account stays active. The December 2025 amendment changed the frequency, the interval and the list of permitted purposes.

Permitted Purposes for Partial Withdrawal

Partial withdrawal is allowed only for the purposes permitted under the latest regulations, and supporting documents are required for each.

• Higher education of children
• Marriage of children
• Purchase or construction of a residential house or flat, where the subscriber does not already own a house. Ancestral property is excluded, and the withdrawal is permitted once
• Medical treatment or hospitalisation of the subscriber, spouse, children or parents
• Repayment or settlement of a financial obligation against which a lien has been marked on the NPS account, subject to the applicable regulations and operating guidelines
• Expenses related to the subscriber’s physical disability or incapacitation. 

Loan Against NPS Account

Since the December 2025 amendment, a regulated financial institution can lend against an NPS account and mark a lien or charge on the individual pension account. The permitted lien amount and lending conditions are specified in the applicable PFRDA regulations and operating guidelines. The lien does not remove money from the account, and the corpus continues to earn returns. Operating guidelines for lenders were to be issued separately, so availability depends on the lender.

Annuity Rules After Premature Exit

The annuity must be purchased from an annuity service provider permitted under the applicable PFRDA regulations. Annuity income is taxable at the subscriber's slab rate. Payout options and rates vary between insurers, and the availableannuity plans differ in features.

Since October 2024, annuities purchased under NPS cannot be cancelled after the free-look period. A circular dated 14 May 2026 relaxed this in two cases. Surrender may be permitted in the specified critical illness cases, subject to the circular, the eligibility conditions and the documentation requirements. Surrender may also be permitted for eligible policies issued before 24 October 2024 that expressly contain a surrender clause, subject to the conditions of the circular.

Before processing a surrender, the annuity service provider must give written details of the surrender value, including deductions, taxes and charges. The request proceeds only after written consent. The provider must inform the CRA within seven working days.

Deferment, Drawdown and Retirement Income Schemes

Non government subscribers can defer the lump sum or the annuity purchase up to age 85 at normal exit. Deferment is not available at premature exit.

The circular of 15 May 2026 announced Retirement Income Schemes, with a lifecycle scheme named RIS Steady, and two drawdown options for the lump sum portion. Operational availability is subject to the effective date and implementation instructions notified by PFRDA. The framework does not change the mandatory annuity requirement of 20% or 40%. Once a drawdown option is exercised, fresh contributions stop.

Other Situations That Allow Early Exit

Apart from voluntary closure, the regulations provide for exit in the following circumstances, each with its own payout and documentation requirements.

• Death of the subscriber: The nominee or legal heir receives the corpus under the settlement rules for the applicable sector.
• Disability: Exit on account of physical incapacitation or bodily disability requires the prescribed medical certification, including the assessment of the subscriber's ability to continue in NPS and the applicable disability threshold.
• Renunciation of Indian citizenship: A subscriber who renounces Indian citizenship and does not hold an OCI card must close the account. In that case the whole corpus will be paid to an NRO account.
• Missing subscribers: Where a government-sector subscriber is declared missing, 20% of the accumulated pension wealth is paid as interim relief to the nominee or legal heir. The remaining 80% must be used to purchase the default annuity after the subscriber is determined to be missing and presumed dead under the applicable legal provisions. 

Tax Treatment of NPS Premature Withdrawal

The Income-tax Act, 2025 came into effect on 1 April 2026. The applicable law for a particular tax year must be determined under the relevant commencement, transition and savings provisions. The table below maps each provision across both Acts.

Old and New Section References

Tax on Lump Sum and Annuity at Premature Exit

The amount received at closure or opting out is examined under Schedule II, Table S. No. 6 of the Income Tax Act, 2025, earlier Section 10(12A), which exempts up to 60% of the amount payable. On a premature exit above ₹5 lakh, the lump sum of up to 20% is received in cash, and the exemption available to it is determined under this provision. The amount used to buy the annuity is not treated as received in that year, and annuity income is taxed at the slab rate when it is received. Where the full corpus of ₹5 lakh or less is withdrawn, any portion above the exempt limit is taxed at the slab rate.

Tax on Partial Withdrawal

A qualifying partial withdrawal is exempt up to 25% of the relevant contributions under Section 10(12B) of the Income-tax Act, 1961. Under the Income-tax Act, 2025, the corresponding provision is Schedule III, Table S. No. 4, read with Section 11. It covers eligible partial withdrawals by an employee and qualifying withdrawals from a minor’s NPS account by a parent or guardian, subject to the applicable conditions.

Tax on the 80% Lump Sum at Normal Exit

PFRDA allows non government subscribers to take up to 80% as a lump sum at normal exit. The exemption under Schedule II, Table S. No. 6, earlier Section 10(12A), is stated as 60% of the amount payable, and its application to each payout option depends on the wording of the provision. Any portion that is not exempt is taxed at the slab rate. The exemption had not been aligned with the 80% limit as on 22 October 2026.

Deductions on Contributions

Own contributions qualify within the ₹1.5 lakh aggregate limit under Section 123 and for an additional ₹50,000 under Section 124(3), as claimed under the old tax regime. Employer contributions are deductible under Section 124(1) and Section 124(2), subject to the percentage limits and the definition of salary in Section 124. Under thenew tax regime, only the employer contribution deduction applies.

How to Withdraw From NPS Before Retirement

Premature exit and partial withdrawal requests are raised through the Central Recordkeeping Agency (CRA) system using thePRAN.

Online Process

The online route may be more convenient where KYC and bank details are already updated in the CRA system. The steps are as follows.

1. Confirm that KYC and bank details are current and that the PRAN is FATCA compliant. An exit cannot proceed otherwise.
2. Log in to the CRA system with the PRAN and password.
3. Select premature exit or partial withdrawal and state the purpose where applicable.
4. Upload the PAN, identity proof, address proof, PRAN card or ePRAN copy and bank proof.
5. Choose the annuity service provider and the annuity plan where the corpus requires an annuity.
6. Authenticate the request with an OTP or eSign.
7. The Point of Presence (POP) verifies and authorises the request for non government subscribers, and the Nodal Office does so for government subscribers. The eligible lump sum is then processed for payment and the annuity purchase is completed, where required.

Offline Process

The offline route suits subscribers who prefer to submit physical forms through a Point of Presence or a Nodal Office. The steps are as follows.

1. Collect the exit or partial withdrawal form from the Point of Presence or the CRA website.
2. Fill in the name, date of birth, PRAN, PAN, address, bank details and nominee details.
3. Attach the PRAN card copy, PAN copy, identity proof, address proof and a cancelled cheque or the first page of the bank passbook.
4. For an exit, add the annuity service provider and plan details. For a partial withdrawal, add documents supporting the stated purpose.
5. Submit the form and documents to the POP for non government subscribers or to the Nodal Office for government subscribers.
6. The request is verified and authorised in the CRA system, and the payout is processed to the bank account registered against the PRAN.

Conclusion

The December 2025 amendment removed the five year lock in period for non government subscribers and raised the full withdrawal limit on premature exit to ₹5 lakh. Where the corpus exceeds ₹5 lakh, a lump sum of up to 20% is payable and at least 80% must be used to buy an annuity. Partial withdrawals, annuity surrender and drawdown are governed by the later PFRDA circulars, and the tax treatment is now referenced under Sections 11, 123 and 124 of the Income Tax Act, 2025. AnNPS calculator can help estimate the accumulated pension wealth and indicative annuity income, while actual payouts depend on investment performance and the annuity terms selected.