NPS Withdrawal Rules

NPS or National Pension Scheme is a defined contribution pension plan offered by the Indian Government. This scheme was launched in the year 2004 after the decision of the government for stopping the defined benefit pension scheme.

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NPS – Overview:

NPS is governed by the Pension Fund Regulatory and Development Authority and is available for every individual who comes in the age group of 18 years to 65 years. Presently, there are eight fund managers of this pension fund:

  • LIC Pension Fund
  • UTI Retirement Solution Ltd.
  • SBI Pension Fund Pvt. Ltd.
  • HDFC Pension Management Co. Ltd.
  • Reliance Capital Pension Fund Ltd.
  • ICICI Prudential Pension Fund Management Co. Ltd.
  • Birla Sunlife Pension Management Ltd.
  • Kotak Mahindra Pension Fund Ltd.

However, there are many conditions and restrictions on NPS rules for withdrawal that an account holder must know.

NPS – Withdrawal Rules:

The rules for withdrawal from NPS are mentioned below:

  • In the case of retirement: In case of retirement, the rules of NPS are mentioned below:
    • If the accumulated corpus in the NPS account is less than or equal to Rs. 2lakhs, then the entire NPS find can be withdrawal.
    • If the accumulated corpus in the NPS account is more than Rs. 2lakhs, then 40% of this accumulated fund will be sent for buying an annuity plan.
    • The rest of the amount can easily be withdrawn as a lump sum and this can as well be postponed till the NPS account holder reaches the age of 70 years.

To understand this, let us take an example:

Mr. X is a retired person and he plans to withdraw his accumulated NPS amount. He has accumulated Rs. 20Lakhs in his NPS account. As per the rule of NPS, he will be able to withdraw Rs. 12Lakhs (60% of the total NPS amount, which is Rs. 20Lakh). The remaining Rs. 8lakhs will be used for buying an annuity. Here one should note that the withdrawn fund will be exempted from tax. However, the amount received from the annuity will be taxable each year according to the income tax slab of the NPS account holder.

  • In case of partial withdrawal from the NPS account: Partial withdrawal from the NPS account is possible only in few cases like for the treatment of some specific diseases, children’s higher education, house purchase or construction, and wedding of children. The rules for partial withdrawal are as follows:
    • For becoming eligible for partial withdrawals, the subscribers have to hold on to their NPS accounts for at least three years.
    • The amount that one can withdraw from the NPS account is restricted to 25% of the contribution of the account holder.

To understand this, let us take an example:

If the contribution of a subscriber is Rs. 5lakh when he/she wants to withdraw, then the allowed withdrawal amount is Rs. 1.25lakh.

  • During the complete lock-in period, a subscriber can withdraw only three times and there has to be a minimum of five years gap between every withdrawal.
  • In case of voluntary exit: A subscriber of the National Pension Scheme is eligible to voluntarily exit this scheme before its tenure gets completed. The rules for this case are:
    • To be eligible for the voluntary exit, one has to hold on to the NPS account for at least 10 years.
    • If the total accumulated corpus is less than Rs. 1Lakh, then the subscriber can withdraw the whole amount.
    • If the accumulated corpus is more than Rs. 1Lakh, then 80% of the entire amount will be used to purchasing an annuity plan.

To understand this, let us take an example:

Mr. Y wants to get a voluntary exit from his NPS account. In the 10 years of his investment in this scheme, he has accumulated Rs. 15lakhs. Now according to the rule of NPS for voluntary withdrawal, he will be able to withdraw Rs. 3Lakhs only. The remaining money that is Rs. 12 Lakhs will be used to purchase the annuity.

Here one should note that both the annuity and withdrawn amount be taxable. The withdrawn corpus will be added to the income of the subscriber and will be taxed as per the slab of the income tax to which he/she belongs.

The annuity, on the other hand, will become taxable when it will be paid. However, the amount that one has used for buying the annuity will be taxed every year as per the income tax slab of the subscriber.

What is NPS Withdrawal Process?

The NPS withdrawal process is different for Tier 1 and Tier 2 account holders. The details of these are given below:

NPS Tier 1 Withdrawal:

  • Online Method: The online withdrawal process for Tier 1 NPS accounts is given below:
    • Go to the official website of the NSDL – CRA.
    • Provide your user ID which is PRAN and password for logging in.
    • Under the tab that is there for ‘Transact Online’, select ‘Withdrawal’.
    • Choose ‘Partial Withdrawal from Tier – 1’ from various available options.
    • Make sure you are entering the correct PRAN and then click ‘Submit’.
    • Now provide the percentage of the fund that is to be withdrawn and provide the reason for the same.
    • Click ‘Submit’.

A form will be created that the subscribers should submit at the NPS’s nodal office with the following documents:

  • Original PAN card
  • KYC documents
  • Advance receipt of stamp that is cross-signed and filled over the revenue stamp by the subscriber.
  • Passbook of the bank, bank's letterhead, canceled cheque, bank certificate that has the name of the account holder, account number, and IFSC code of the bank.
  • If the NPS account holder is eligible to withdraw the complete amount, then undertaking cum request form.
  • Offline Method: A subscriber should download the relevant form like partial withdrawal, retirement, or exit form, fill this form with all the required details, and attach it with all the supporting documents that are specified above. These documents have to be submitted to the nearest Point of Presence Service Provider (PoP – S/ PoP).

NPS Tier 2 Withdrawal:

Tier 2 withdrawal can only be carried out via PoP – SP. For the same, one has to fill a UOS – S12 form and attach this form with all the relevant documents. The PoP then initiates the request for withdrawal and the amount will be disbursed within three days.

Tax Implications on NPS:

The income tax benefits on NPS are available under the below section:


Exemption Ceiling

Section 80CCD (1)

Rs. 1.5Lakhs – provided under entire tax exemption offered u/s 80C.

Section 80CCD (2)

10% of the salary, which is basic + DA that is contributed by the employer above and over section 80CCD (1).

Section 80CCD(1b)

Rs. 50,000 above and over section 80CCD (1) and 80CCD (2).


The Final Words!

Therefore, before initiating the withdrawal, one has to make sure whether the NPS plan he/she has opted for is under Tier – 1 or Tier – 2 and then follow the procedure.

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