NPS Premature Withdrawal

The National Pension Scheme is the Central Government’s social security initiative to protect the financial health of the retired. NPS primarily aims to build a retirement corpus accumulating a fixed small portion of your monthly earnings. You can withdraw the corpus when it matures as you turn 60, subject to the governing rules. However, you need to comply with a different set of rules if you wish to withdraw NPS funds prematurely. So, let us delve deeper into the scheme and find out more. 

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Understanding the National Pension Scheme (NPS)

The original NPS beneficiaries were the government employees, but subsequent amendments in the rules brought all Indian citizens within its ambit, whether salaried or self-employed. The NPS functions structurally through two accounts - Tier-I and Tier-II. While the former is compulsory where your fixed monthly contributions accumulate, the latter is optional, and you can park funds here at your convenience. In addition, the Tier-I funds are locked until maturity, while the Tier-II imposes no bar on credits and debits. So, let us learn the rules governing withdrawals from the Tier-I account.

NPS Withdrawal Rules

It is often said about NPS that it is easy to subscribe to NPS but not as easy to exit. However, there are no restrictions on withdrawing funds from the Tier-II account. Therefore, the current withdrawal rules under NPS mainly apply to the Tier-I account.

NPS features several rules defining the withdrawal terms and conditions, limits, and procedures after maturity. Additionally, the considerations determine the withdrawal type and amount alongside timelines. Moreover, NPS withdrawal rules vary according to the sectors where the subscriber belongs. So, let us consider the various withdrawal scenarios for clarity.

  1. Maturity Withdrawal Rules - Government Sector Employees

    The individual subscriber can withdraw the accumulated corpus on reaching the statutory retirement age at 60, subject to the following conditions.

    • Withdraw 60% of the corpus freely in a lump sum for the subscriber’s use.

    • Compulsorily purchase an annuity from approved service providers with the corpus balance of 40% for a regular pension. However, you can invest a higher percentage of the corpus in the annuity.

    • In addition, you can postpone the lump sum corpus withdrawal to 70 years.

    • However, you can withdraw the entire corpus when the accumulated maturity value is Rs. 5 Lakhs or less.

  2. Voluntary Exit Withdrawal Rules - Government Sector Employees

    • The compulsory investment in the annuity is 80% of the accumulated corpus.

    • However, the subscriber can withdraw the entire amount if the accumulated value is Rs.2.5 Lakhs or less.

  3. Death-Related Withdrawal Rules - Government Sector Employees

    The subscriber’s nominee or the legal heir receives the entire accumulated corpus.

  4. Maturity Withdrawal Rules – Corporate Sector and Citizens

    Withdrawal is allowed under the scheme rules on the subscriber’s retirement or at 60 years of age.

    • Withdraw 60% of the corpus freely in a lump sum.

    • Purchase an annuity from approved service providers with a balance of 40% for a regular pension. However, you can allocate a higher percentage of the corpus for purchasing an annuity. In addition, you can postpone the lump sum corpus withdrawal to 70 years.

    • However, you can withdraw the entire corpus if the accumulated maturity value does not exceed Rs. 5 Lakhs.

  5. Voluntary Exit Withdrawal Rules - Corporate Sector and Citizens

    • The subscriber’s NPS account should be at least 10-years old.

    • The compulsory investment in an annuity is not below 80% of the accumulated corpus.

    • However, the subscriber can withdraw the entire amount if the accumulated maturity value is Rs.2.5 Lakhs or less.

  6. Death-Related Withdrawal Rules - Corporate Sector and Citizens

    The subscriber’s nominee or the legal heir can withdraw the accumulated corpus.

NPS Premature Withdrawal Rules

After discussing the several withdrawal rules applicable to the NPS Tier-I, the natural progression is learning about premature withdrawal rules. However, some above-described scenarios also cover early withdrawal under special conditions other than maturity.

The thumb rule for premature exit from NPS is a minimum subscription of 3-years from the account opening date. Moreover, the withdrawal limit in a lump sum is 20% of the corpus, while the balance of 80% goes to purchasing an annuity for a regular pension. However, the rules for partial NPS withdrawal are far more elaborate. So, let us study them.

NPS Partial Withdrawal Rules

The design for withdrawal from NPS is straightforward and uncomplicated. The primary aim is to assist the NPS subscriber in financial planning. So, let us explore the various rules governing partial withdrawals.

  1. Partial Withdrawal Timelines

    You must adhere to the following timelines for approval of the partial withdrawal application.

    • You can apply for partial withdrawal when your subscription is 3-years old.

    • You can request a partial withdrawal from NPS on three occasions.

    • The minimum gap between each request must be at least 5-years.

  2. Partial Withdrawal Amount Limits

    Partial withdrawal from NPS is available after amending the original rules. Accordingly, the following amount limits apply to partial NPS withdrawals.

    • You can withdraw up to 25% of the contribution to NPS.

    • You can withdraw only from the principal accumulation and not the accrued interest.

    • Therefore, you cannot touch the NPS Tier-I account balance through your application for partial withdrawal.

  3. Partial Withdrawal Conditions

    According to the NPS rules, only exceptional cases warrant partial withdrawals. So, you can apply for partial withdrawal under the following specific emergency conditions:

    • Children’s higher education and marriage

    • Critical illness treatment for the subscriber, spouse, children, and dependent parents

    • Purchase or construction of residential property in the subscriber’s name. However, the subscriber cannot apply if already a sole or joint owner of a house other than ancestral property.

    • Suffering fatal accidents

NPS Withdrawal Process

The subscriber can use either the online or offline option to withdraw from NPS.

  1. Online Process

    Logging in to the NPS portal is the first step in initiating the withdrawal process. Accordingly, log in to your NPS account using your PRAN and password for lodging the request. However, there are no complications in exit requests from the Tier-II account, but the Tier-I account imposes several restrictions.

  2. Offline Process

    The first step in the offline application is obtaining the appropriate form. Accordingly, you can download from the following list to meet your specific requirement.

    • NPS partial withdrawal form

    • NPS premature exit

    • NPS exit superannuation or incapacitation

    • NPS exit on the death of a government employee

    Fill in all the details specified in the relevant form and submit it to the NPS Point of Presence (POP). Attach the applicable supporting documents to initiate the exit process. Some critical inputs in the exit application are:

    • Subscriber’s name

    • Date of birth

    • Address for correspondence

    • Gender

    • PRAN details

    • PAN card details

    • Nominee details

    Since the NPS withdrawal disbursement is through the banking channel, you must also provide additional information.

    • Bank and branch name

    • Bank Branch IFSC and MICR Code

    • Bank branch address

    • In addition, provide the information regarding the corpus deployment and purchase of an annuity from a PFRDA-empanelled annuity provider to commence monthly pension payouts.

In Conclusion

NPS is a government-sponsored social security shield for protecting your golden years of life after retirement. Its primary aim is to ensure a steady pension replacing the dried-up income stream of an individual’s active working life. While the withdrawal rules are stringent considering the social security concerns of the government, premature withdrawal is an exception. Accordingly, you must comply with the early withdrawal rules applicable to the NPS Tier-I account rather than the Tier-II account, where there are no restrictions.

FAQ's

  • Q: What are the tax implications of NPS’s premature withdrawal?

    Ans: You can prematurely withdraw a maximum of 20% of the accumulated NPS corpus while the balance must go towards purchasing an annuity. However, the 20% lump sum withdrawal and the annuity are taxable according to the subscriber’s applicable slab rate.
  • Q: When does the pension commence in the case of premature exit from NPS?

    Ans: The pension payment can start immediately if the subscriber complies with the age and corpus criteria for purchasing an annuity.
  • Q: What documents do you require for exit from NPS, whether premature or superannuation?

    Ans: The following list of documents required for exit application, whether premature or superannuation, are:
    • Original PRAN card
    • Relevant documents for KYC compliance
    • Request –cum-undertaking for complete withdrawal
    • Canceled bank account cheque and the first page of the passbook with the subscriber’s photograph
    • Receipt confirming the payment signed across a revenue stamp
  • Q: Do you pay any charges for deferring withdrawal from the NPS account beyond your retirement at 60?

    Ans: Yes, you have to pay several charges if you delay the NPS withdrawal after your retirement at 60, including CRA and maintenance of PRAN.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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