What are the NPS withdrawal rules?

The Indian government introduced the National Pension Scheme (NPS) to secure the future of citizens after they retire. It has proven to be a great tax-saving retirement fund and the perfect long-term investment tool, as witnessed by a 30% surge in subscribers who looked to secure their future during the COVID-19 pandemic.

Usually, it is simpler to enrol for any scheme than to exit, but this is not the case with NPS. To take out money, you need to follow certain simple NPS withdrawal rules that are as easy as the retirement life you plan to lead.

NPS withdrawal rules

NPS withdrawal rules vary and have been framed differently for different categories of citizens.

Rules for government and corporate employees on retirement:

  1. The individual needs to invest a minimum of 40% of the accumulated corpus in annuity while enjoying the option to withdraw the rest of the amount in a lumpsum

  1. The individual has the option to defer withdrawing the lumpsum until they have reached 70 years of age

  1. If the accumulated pension is less than Rs 2 lakh, the individual has the freedom to withdraw the entire amount 

NPS withdrawal rules for government employees taking voluntary retirement:

  1. The individual has to invest a minimum of 80% of the amount in an annuity

  1. If the pension accumulated is less than Rs 1 lakh, the individual has the freedom to withdraw the entire amount 

NPS withdrawal rules in case of death of government and corporate employee:

  • In the event of the death of a government employee before retirement age, the entire amount is handed over to the nominee/legal heir

NPS withdrawal rules for corporate employees and citizens on voluntary exit:

  1. The individual must have stayed invested in his account for 10 years 

  1. As much as 80% of the amount must be used to purchase an annuity 

  1. If the amount accumulated is less than Rs 1 lakh, then withdrawal of the entire amount is permitted 

Rules for partial withdrawal from NPS: 

  1. The subscriber is allowed to make withdrawals from their NPS account only three times during their tenure 

  1. The subscriber has to maintain an interval of five years between two withdrawals. This gap can be waived only in case of medical emergencies 

  1. The subscriber is allowed to withdraw only up to 25% of the contribution they have made to date towards the scheme 

  1. The subscriber should have been a member for at least three years to qualify for partial withdrawal 

  1. Partial withdrawal is allowed for exceptional circumstances such as education of children, marriage expenses, house construction, or medical emergencies 

NPS rules for premature withdrawal – Tier 1 & Tier II accounts:

NPS Tier I Account: Before 2011, there was a lock-in period till the age of 60 years. After a committee reviewed the Pension Fund Regulatory and Development Authority Bill, it concluded that subscribers should be allowed to make premature withdrawals after having completed 15 years of service in the form of repayable advances. If they have completed 25 years of service, they can withdraw up to 50% of their contribution to NPS. Withdrawals are allowed in emergencies, medical illnesses, and other events that require financial assistance in the subscriber’s life.

NPS Tier II Account: Withdrawals permitted to those invested in an NPS Tier II account are unlimited. Therefore, a Tier II account is just like a savings bank account. However, withdrawing money from an NPS account can be cumbersome as there are few points of presence through which withdrawal requests can be made. The non-availability of an online portal also makes the process a long one.

New NPS partial withdrawal rules:

NPS partial withdrawal rules have been altered. Mentioned below are the applicable rules on partial withdrawal currently.

The amount allowed to be partly withdrawn: Only the principal amount is considered while calculating the amount an individual qualifies for part withdrawal. The interest accumulated in the NPS account of an individual cannot be withdrawn during partial withdrawals. Thus, one can partially withdraw 25% of the amount contributed to NPS and not the total balance in the account.

Time period for partial withdrawal: A partial withdrawal is possible only after completing three years as a member of NPS. For instance, if you have deposited Rs 5,000 every month for 10 years, the principal amount accumulated is Rs 6 lakh. Hence, you qualify to withdraw 25% of Rs 6 lakh, which is Rs 1.5 lakh.

Three such partial withdrawals are allowed during the tenure of a subscriber, given that the time period between two successive partial withdrawals is five years. All such partial withdrawals are exempt from income tax.

Looking to apply for an NPS scheme? Click here to find out more.

Read more about the changes in the NPS rules here.

* Terms and Conditions apply.  The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action.