What are the NPS withdrawal rules?

The National Pension Scheme (NPS) is a significant retirement savings instrument introduced by the Indian government to secure citizens' futures post-retirement. It has seen increased adoption, especially during challenging times like the COVID-19 pandemic. While enrolling in the NPS is relatively straightforward, understanding the rules for withdrawal is crucial for effectively managing your retirement funds. This guide provides a detailed overview of the NPS withdrawal rules, ensuring you have all the information needed for effective planning.

 1. Withdrawal Rules for Government and Corporate Employees Upon Retirement

• Investment in Annuity: At retirement, individuals must invest at least 40% of their accumulated corpus into an annuity. The remaining amount can be withdrawn as a lump sum.
• Deferral Option: Withdrawals can be deferred until the individual turns 70 years old.
• Minimum Corpus: If the total accumulated pension is less than Rs 2 lakh, the entire amount can be withdrawn.
   

2. Withdrawal Rules for Government Employees Taking Voluntary Retirement

• Annuity Requirement: Individuals must invest a minimum of 80% of their accumulated corpus in an annuity.
• Minimum Corpus: For pension amounts less than Rs 1 lakh, the entire amount can be withdrawn.
   

3. Withdrawal Rules in Case of Death

• Government Employees: If a government employee passes away before retirement, the entire accumulated amount is transferred to the nominee or legal heir.
   

4. Withdrawal Rules for Corporate Employees and Citizens on Voluntary Exit

• Investment Duration: The account must be held for at least 10 years.
• Annuity Requirement: A minimum of 80% of the accumulated amount must be invested in an annuity.
• Minimum Corpus: If the total corpus is less than Rs 1 lakh, the entire amount can be withdrawn.

• Withdrawal Limits: Subscribers can make partial withdrawals up to three times during their tenure, with a minimum interval of five years between withdrawals. This interval can be waived in cases of medical emergencies.
• Amount Limits: Up to 25% of the total contributions made by the subscriber can be withdrawn.
• Eligibility: Subscribers must have been members for at least three years to qualify for partial withdrawals.
• Permitted Reasons: Partial withdrawals are allowed for specific reasons such as education of children, marriage expenses, house construction, or medical emergencies.

• NPS Tier I Account:
  
  • Pre-2011 Rules: Previously, there was a lock-in period until the age of 60.
  • Post-2011 Rules: Subscribers can withdraw up to 50% of their contributions after completing 25 years of service. Withdrawals are permitted in cases of emergencies, medical illnesses, or other significant financial needs.
     
• NPS Tier II Account:
  • Unlimited Withdrawals: NPS Tier II accounts allow unlimited withdrawals, similar to a savings account. However, the process can be cumbersome due to limited points of presence and the absence of an online portal.

• Amount Calculation: Only the principal amount is considered for partial withdrawals; interest accumulated cannot be withdrawn. Subscribers can withdraw up to 25% of their total contributions.
• Time Frame: Partial withdrawals are allowed only after three years of being a member. For example, if a subscriber has contributed Rs 5,000 monthly for 10 years, resulting in a principal of Rs 6 lakh, they can withdraw up to Rs 1.5 lakh.
• Tax Benefits: All 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.