NPS withdrawal rules are applicable differently depending on the type of withdrawal, subscriber category, age or exit at retirement, and NPS account. Generally, offer partial withdrawal of Tier I, premature exit from NPS, withdrawal at superannuation, death-related withdrawal, and comparatively simpler Tier II withdrawal each regulated by different criteria and annuity norms.
What Is NPS Withdrawal?
NPS withdrawal refers to withdrawal of benefits from the subscriber’s NPS account either partially or fully by exiting from the NPS subscription. Part of or total corpus can be withdrawn by citizens under conditions, after completing a certain period in the case of partial withdrawal, premature exit before retirement age, upon superannuation, and in the case of a nominee or a subscriber’s death, while the general account is not liquid.
What Are the Different Types of NPS Withdrawals?
NPS withdrawal rules specify that there are four types of withdrawals each associated with different regulations for the subscriber’s account.
Partial Withdrawal From NPS Tier I
When is it permissible: after a certain account holding period for specific reasons.
Further corpus status: partial withdrawal is allowed from the subscriber’s Tier I account, but only up to a certain percentage of the contributions.
Continuation of account: yes, partial withdrawal does not affect the status of the subscriber’s Tier I account.
Premature Exit From NPS
When is it permissible: at any time when a subscriber wishes to completely exit from NPS before attaining retirement age or superannuation, but after the completion of a certain period.
Further corpus status: a certain percentage of the corpus is used for purchasing an annuity.
Continuation of account: no, the subscriber’s Tier I account is closed upon exit.
Withdrawal at Retirement or Superannuation
When is it permissible: upon attaining superannuation age or completing the subscription period.
Further corpus status: the corpus is distributed as a lump sum and annuity purchase.
Continuation of account: no, the subscriber’s Tier I is formally closed after withdrawal at superannuation.
Withdrawal in Case of Subscriber’s Death
When is it permissible: in case of subscriber’s death before or after superannuation.
Further corpus status: the corpus is entirely paid to the subscriber’s nominee or legal heir unless annuity purchase conditions apply.
Continuation of account: no, the subscriber’s Tier I account is closed after the nominee claim settlement.
NPS Partial Withdrawal Rules
Eligibility for Partial Withdrawal
Can I partially withdraw from NPS? Tier I account holders can apply for a partial withdrawal after completing a minimum account holding period, usually 3 years.
Permitted Reasons for NPS Partial Withdrawal
How much can I withdraw from NPS? An NPS subscriber can withdraw up to 25% of their own contributions, not including employer contributions, for any of the following reasons for partial withdrawal:
• higher education or marriage of children,
• residential house purchase or construction,
• treatment of specific ailments,
• subscriber’s disability above a certain percentage,
• establishing a business.
Number of Partial Withdrawals Allowed
How many times can NPS be partially withdrawn? NPS subscribers are allowed a certain number of partial withdrawals within the account holding period, but not more frequently than once every few years, with a particular provision for the treatment of specific ailments or other critical medical conditions. Check PFRDA regulations for more information, as the norms have been recently updated.
NPS Premature Exit Rules
Can I withdraw NPS before 60? Yes, NPS subscribers can fully exit from their Tier I accounts before superannuation, but not before completing a minimum account holding period, usually 5 years. At least 80% of the corpus, depending on its size, should be used for purchasing an annuity, from which the subscriber will receive monthly pension payments for the rest of their life. Thus, even upon an early exit from NPS, the subscriber continues to benefit from the retirement savings scheme in the form of an annuity. Additionally, the early exit allows a larger portion of the corpus to be withdrawn as a lump sum.
What are NPS withdrawal rules at Retirement
What happens to NPS at retirement? The subscriber’s corpus is distributed between the lump-sum withdrawal and annuity purchase upon superannuation. Generally, at least 40% of the corpus should be used for pension, from which the subscriber will receive monthly income for the rest of their life.
Lump-Sum Withdrawal
Depending on the size of the subscriber’s corpus, a considerable percentage of it, usually up to 60%, can be withdrawn as a lump sum at retirement.
Annuity Purchase
At least 40% of the subscriber’s corpus should be used for the purchase of an annuity from any of the empaneled Annuity Service Providers, which will provide the subscriber with monthly pension payments throughout their lifetime. By way of illustration, upon NPS withdrawal at superannuation, the subscriber’s corpus is split between the lump-sum withdrawal and annuity.
NPS Withdrawal Rules for Government and Non-Government Subscribers
NPS Withdrawal Rules for Government Employees
Are NPS withdrawal rules different for government employees? Generally, government sector employees can partially withdraw from their Tier I accounts under the same rules as other subscribers, while additional considerations apply to early or premature exit, which may relate to voluntary or forced resignation.
NPS Withdrawal Rules for Corporate and Other Non-Government Subscribers
Can corporate NPS subscribers withdraw before retirement? Corporate subscribers and All Citizen model account holders can partially and prematurely exit from NPS under the same rules and considerations as for other than government employees.
NPS Tier I vs. Tier II Withdrawal Rules
Is Tier II NPS withdrawal restricted? One of the most common myths regarding the NPS is that the rules on withdrawals from Tier II are in any way different from those on withdrawals from Tier I. In fact, those on the accounts do not differ in terms of:
Withdrawable amount: no restrictions for Tier II vs. certain percentages for Tier I.
Lock-in: Tier II is not locked, whereas Tier I has a lock-in period up to superannuation.
Annuitisation: Tier II is not subject to annuitisation at superannuation.
Flexibility: Tier II offers more flexibility, as there are no restrictions on withdrawal, unlike Tier I.
How to Withdraw Money From NPS
NPS Withdrawal Online
How can I withdraw NPS online? Generally, the process for online withdrawal involves the following steps:
Logging into the CRA/eNPS portal with your credentials;
• Selecting the appropriate withdrawal request;
• Specifying the required withdrawal details, including the amount and purpose, if any;
• Uploading any supporting documents, if any;
• Authenticating and submitting the withdrawal request;
• Checking the status of the withdrawal request online.
NPS Withdrawal Offline
An alternative for those who prefer it is to physically visit the nearest Point of Presence (PoP) or the nodal office of the subscriber’s choice and submit the necessary withdrawal request form along with the supporting documents, if any. Then, the withdrawal request will be processed by the concerned Certifying Authority (CRA).
Documents Required for NPS Withdrawal
Depending on the type of withdrawal, an NPS subscriber may be asked to provide the following documents for submission along with their withdrawal request:
• Proof of identity: PAN, Aadhaar, or other details;
• PRAN-related documents: these are required to withdraw funds from a particular account;
• Bank account details: the withdrawal proceeds will be transferred to the subscriber’s bank account;
• Request form: withdrawal application forms are to be submitted to the CRA;
• Other documents: this may include additional documents, depending on the type and reason for withdrawal.
Tax Implications of NPS Withdrawal
Is NPS withdrawal taxable? The taxability of NPS withdrawal depends on various factors, including the type of withdrawal and the time of withdrawal. Partial withdrawal from Tier I is generally tax-free up to a certain limit. At the time of retirement, the lump sum withdrawal is also generally tax-free. However, the annuity payments received from the NPS corpus are subject to taxation in the year of receipt. Is NPS maturity amount tax-free? The maturity amount of NPS is partially tax-free. The lump sum withdrawal portion is tax-free, whereas the annuity payments received are subject to taxation. Similarly, the taxability of premature withdrawal also depends on the amount withdrawn. These tax provisions should be cross-referenced with the Income-tax Act for more clarity.
FAQs on NPS Withdrawal Rules
1. How much can I withdraw from NPS before retirement?
An NPS subscriber can partly withdraw up to 25% of their own contributions from their Tier I account for specific reasons after completing a minimum account holding period of 3 years.
2. Can I withdraw the full NPS amount at retirement?
Only if the subscriber’s total corpus falls below a certain threshold can they withdraw the entire amount of their NPS corpus. Otherwise, a certain percentage of the corpus, usually 60%, can be withdrawn as a lump sum, while the remaining portion should be used for purchasing an annuity.
3. How many times can partial withdrawals be made from NPS?
An NPS subscriber can make a certain number of partial withdrawals within the account holding period, but not more frequently than once every few years, with a particular provision for the treatment of specific ailments or other critical medical conditions.
4. Can I withdraw from an NPS Tier II account anytime?
Yes, a subscriber can make unlimited withdrawals from their Tier II account anytime, as this portion of their NPS corpus is not subject to any restrictions.
5. What happens to an NPS account if the subscriber dies?
Upon subscriber’s death, their nominee or legal heir can claim the entire corpus of the subscriber’s Tier I account, subject to annuity purchase conditions.
6. How long does an NPS withdrawal request take?
The processing of the withdrawal request can take different amounts of time, depending on the type of withdrawal and other factors. Generally, online withdrawal requests are processed faster than offline requests sent to the subscriber’s nearest Point of Presence (PoP).
