NPS Withdrawal Rules

NPS or National Pension Scheme is a defined contribution pension plan offered by the Indian Government. It is a great way to save for retirement and ensure financial security in your golden years. But figuring out how to withdraw money from it can be a bit tricky.

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What is the NPS Withdrawal Online Rule?

The National Pension System (NPS) provides a structured framework for retirement savings, and understanding its withdrawal rules is essential for individuals planning their financial future. Subscribers have the flexibility to exit at the retirement age set by their employers, often around 58 or 60 years. Two primary withdrawal options exist: purchasing an annuity with 40% of the total contribution and withdrawing the remaining 60% as a lump sum or in installments. For those reaching 60, the annuity plan purchase can be extended for three years, which is especially beneficial for equity-heavy portfolios. 

Additionally, a deferred withdrawal option at 70 allows for the postponement of 60% of the withdrawal, with the option to make fresh contributions. These rules aim to provide a strategic and adaptable approach to accessing NPS savings tailored to individual preferences and financial circumstances.

NPS Withdrawal Online Limit

The National Pension System (NPS) offers two types of accounts – Tier I and Tier II, each governed by its specific NPS withdrawal rules. These rules are designed to cater to investors' different financial needs and objectives.

NPS Tier 1 Withdrawal Online:

Tier I accounts have specific withdrawal rules that come into play under various circumstances:

Partial Withdrawal:

  • Investors can make partial withdrawals from their NPS Tier I accounts under certain conditions.

  • The partial withdrawal is allowed for specific reasons like higher education, marriage, purchasing a house, or medical treatment.

Withdrawal Before Maturity:

  • Withdrawal from the Tier I account is generally restricted before maturity, which is at the age of 60.

  • However, certain conditions, such as critical illness or disability, may allow for premature withdrawals.

Withdrawal After Maturity:

  • Upon reaching the age of 60, investors can withdraw a lump sum amount from their Tier I account.

  • A part of the corpus must be used to purchase an annuity that provides a regular pension income.

Tier II Withdrawal Limits:

Unlike Tier I, there is no withdrawal limit for Tier II accounts. Investors have the flexibility to withdraw funds as per their requirements without any specific restrictions. This feature makes Tier II accounts attractive for those looking for a more liquid investment option.

Tax Implications:

It's important to note that while Tier I accounts come with tax benefits under Section 80C, Tier II accounts do not offer the same advantage. Investors often choose Tier II accounts for their flexibility and liquidity, especially when tax benefits are not a primary consideration.

What are the Rules About NPS Withdrawals Online?

Rules Applicable to Government Sector Participants Upon Retirement:

  • Minimum 40% investment in annuity, with the option to withdraw the balance as a lump sum.

  • Postponement of lump sum withdrawal until the subscriber reaches the age of 70.

  • Complete withdrawal is allowed if the accumulated pension is less than Rs.5 lakh.

Rules Applicable to Government Sector Subscribers Taking Voluntary Retirement:

  • Minimum 80% investment in annuity.

  • Complete withdrawal is permitted if the accumulated pension is less than Rs.2.5 lakh.

  • The balance amount is paid to the subscriber.

Rules Applicable to the Death of Government Sector Subscriber:

In case of a subscriber's demise before retirement, the entire amount is given to the nominee/legal heir.

Rules Applicable to Corporate Sector Employees & Citizens on Retirement:

  • Minimum 40% investment in annuity, with the option to withdraw the balance as a lump sum.

  • Postponement of lump sum withdrawal until the subscriber reaches the age of 70.

  • Complete withdrawal is allowed if the accumulated pension is less than or equal to Rs.5 lakh.

Rules Applicable to Corporate Sector Employees & Citizens on Voluntary Exit:

  • A minimum of 10 years of account maintenance is required.

  • 80% of the amount should be used to purchase the annuity.

  • Complete withdrawal is permitted if the accumulated pension is less than or equal to Rs.2.5 lakh.

Rules Applicable to Death of Corporate Sector Subscriber:

In the event of a subscriber's death, the nominee can choose to withdraw the accumulated amount as a lump sum, thereby availing of NPS death benefits.

What are NPS Partial Withdrawal Rules?

NPS allows subscribers to make partial withdrawals under specific conditions:

  • Frequency: A subscriber can withdraw only three times during their subscription tenure.

  • Limit: Withdrawals are capped at 25% of the subscriber's contributions to the scheme.

  • Eligibility: To qualify for partial withdrawal, a subscriber must be a member of the scheme for at least three years.

  • Exceptional Cases: Partial withdrawal is permitted in specific situations, including education expenses, marriage, house construction, or medical emergencies.

What are NPS Premature Withdrawal Rules for Tier I & II?

NPS Tier I Withdrawal Online Rules:

NPS Tier I subscribers can make partial withdrawals for critical needs like medical treatment, education, or marriage after a minimum investment tenure of 3 years. The NPS withdrawal online is capped at 25% of the corpus, and investors can apply for it a maximum of 3 times with a 5-year gap between each withdrawal. All partial withdrawals are tax-free.

For example,

If Mrs Sharma, who starts investing at 38, contributes Rs. 3,00,000 by 43, she can withdraw a maximum of Rs. 75,000 for specific situations. The remaining must be used for annuities for post-retirement income. In case of the investor's demise before retirement, 100% of the corpus goes to the nominee without tax deductions, offering financial security.

NPS Tier II Withdrawal Rules:

NPS Tier II accounts provide subscribers with the flexibility to make partial withdrawals for any purpose without specific restrictions. Unlike Tier I accounts, there are no predefined rules for withdrawal amounts. However, it's essential to note that Tier II accounts do not offer the same tax benefits as Tier I. While withdrawals are unrestricted, the amount withdrawn is subject to taxation. In summary, NPS Tier II provides easy access to savings, but subscribers should consider the tax implications before making partial withdrawals.

For example,

If Mrs Sharma has contributed Rs. 3,00,000 to her Tier II account. While she is eligible to withdraw the entire amount without facing any specific limitations, the withdrawal would be subject to taxation.

What are the Conditions for Partial NPS Withdrawal?

The Pension Fund Regulatory and Development Authority (PFRDA) permits partial withdrawals from NPS Tier I accounts under specific conditions:

  • Children’s Higher Education: Partial withdrawals are allowed to fund higher education expenses.

  • Children’s Marriage: Withdrawals permitted for child marriage expenses.

  • Purchase or Construction of Residential Accommodation: Withdrawals for property purchase or construction (in the investor's or joint ownership with a spouse), excluding owned houses.

  • Treatment of Critical Illnesses: Withdrawals allowed for critical illness treatment (investor, spouse, children, or dependent parents).

Examples of critical illnesses include cancer, kidney failure, organ transplants, heart surgeries, stroke, coma, paralysis, and serious accidents.

What are NPS Exceptions for the Five-Year Gap Rule?

Exceptions to the five-year gap rule under the National Pension System (NPS) exist in cases of critical illnesses, accidents, and life-threatening ailments. These exceptions include:

  • Coronary Artery Bypass Graft

  • Accident of serious or life-threatening nature

  • Major Organ Transplant

  • Total blindness

  • Coma

  • Multiple Sclerosis

  • Kidney Failure (End Stage Renal Failure)

  • Primary Pulmonary Arterial Hypertension

  • Myocardial Infarction

  • Stroke

  • Cancer

  • Heart Valve Surgery

  • Paralysis

  • Aorta Graft Surgery

  • Any critical illness that is life-threatening as stipulated in the guidelines, circulars, or notifications issued from time to time by the Authority

What are the Documents Required for NPS Withdrawal Online?

For NPS withdrawal online, you'll need:

  • Identity Proof: Aadhaar, PAN, Passport, etc.

  • Address Proof: Electricity bill, Ration card, etc.

  • Original PAN Card: Essential for verification.

  • Bank Documents: Bank's letterhead, passbook, cancelled cheque, or bank certificate.

Proof of account details.

  • Undertaking and Request Form: If eligible for complete withdrawal.

  • Advance Stamped Receipt: Signed and filled out with a revenue stamp.

Ensure all documents are accurate for a smooth NPS withdrawal online.

What is the NPS Withdrawal Process?

The withdrawal process for the National Pension System (NPS) can be carried out offline by completing the relevant form. There are three distinct NPS forms for different withdrawal scenarios:

  • Exit from NPS subscription before maturity

  • Incapacity of subscriber or withdrawal after superannuation (maturity)

  • Partial withdrawal of NPS contribution

For government employee subscribers, a specific NPS withdrawal online form is applicable. To initiate the withdrawal, submit the appropriately filled forms along with necessary documents at a designated NPS Point of Presence (PoP).

Ensure the form includes the following details:

  • PRAN number

  • PAN number

  • Subscriber's name, address, and gender

  • Subscriber's date of birth

  • Nominee details

  • Bank account details (account number, IFSC code, bank name, and branch address)

Additionally, it provides information about the corpus, including the annuity provider and the chosen type of annuity. The withdrawal offers various annuity options, such as:

  • Annuity or pension payable for life

  • Annuity payment for 5, 10, 15, or 20 years with certainty until the subscriber’s death

  • Annuity for life, with the purchase price returned on death

  • Annuity payout at an increasing rate of 3.00% per annum

  • Annuity for life with 50% payable to the spouse on the subscriber's death

  • Annuity for life with 100% payable to the spouse on the subscriber's death

  • Annuity purchase price will be refunded on the death of the last survivor, with 100% payable to the spouse on the subscriber's death.

How Do You Check the Status of NPS Withdrawal? 

Follow the below-mentioned steps to check the status of the NPS withdrawal: 

  • Visit the NPS online portal: Head to www.cra-nsdl.com.

  • Access Limited View: Click 'Limited Access View' before logging in.

  • Navigate to Withdrawal Status: Once in Limited Access View, choose 'Exit Withdrawal Request' and then select 'Withdrawal Request Status View.'

  • Check Status: A new page will open, displaying your NPS withdrawal online status.

Additionally, subscribers can use Limited Access View, a pre-login feature on the CRA website homepage, to view their NPS withdrawal online status conveniently. 

What are NPS Taxation Rules?

National Pension System (NPS) withdrawals are subject to taxation, with rules varying based on the type of withdrawal. Here's an overview:

  1. Partial Withdrawal:

    • Zero tax for partial withdrawal of NPS contribution.

    • No tax if withdrawal is made after at least 10 years of subscription.

    • Limitation: Lump sum withdrawal is limited to 25% of the total contribution, allowable three times during the NPS account's lifetime.

  2. Premature Exit:

    • 20% of lump sum withdrawal is taxable.

    • Mandatory conversion of 80% corpus into the annuity, taxed according to the applicable slab in the payout year.

  3. Superannuation (Maturity):

    • No tax on 60% of NPS withdrawal at superannuation (maturity).

    • Mandatory conversion of 40% of the NPS withdrawal into annuities. 

What are NPS Exit Rules?

The NPS exit rules have undergone changes, allowing subscribers to exit at the retirement age designated by their employers, which may be as early as 58 years. Subscribers have two main options for exit:

  1. Annuity Purchase:

    • 40% of the total contribution can be used to purchase an annuity from government-authorized agencies.

    • The remaining 60% can be withdrawn as a lump sum or in installments.

  2. Deferred Withdrawal at 60:

    • Subscribers can extend the time to purchase an annuity plan for up to three years after reaching 60.

    • Applicable for those with a major share of contributions in equities.

    • Withdrawal can be delayed if the market performance is low during retirement.

    • A written request must be submitted 15 days before retirement.

  3. Deferred Withdrawal at 70:

    • 60% of the withdrawal can be postponed until the age of 70.

    • Fresh contributions are allowed during this period.

    • On reaching 70, the amount can be withdrawn in lump sum or installments.

    • A written request must be submitted 15 days before retirement.

  4. Additional points:

    • In case of the subscriber's death during the deferment period, the spouse can avail of the bonus to purchase an annuity.

    • If market conditions are unfavorable, the withdrawal of the corpus can be delayed.

    • For both deferment options, a written request must be submitted 15 days before retirement to the concerned authority.

FAQ's

  • Can I exit from NPS after 5 years?

    Yes, generally after 5 years you can exit NPS with full withdrawal or opt for an annuity plan. However, exceptions apply for specific situations like critical illness or unemployment.
  • What are the new rules for NPS 2023?

    Two key changes:
    • Instant bank account verification is mandatory for faster withdrawals.

    • New option for phased withdrawal of a lump sum of up to 60% of the corpus through Systematic Lump Sum Withdrawal (SLW) facility.

  • What are the withdrawal charges for NPS?

    No specific withdrawal charges for NPS. However, tax implications may apply depending on your withdrawal amount and account type.

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^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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