The National Pension System (NPS) is a retirement scheme launched by the Government of India. While this scheme allows you to start investing early for your golden years, there are a few NPS withdrawal rules you have to be aware of.
Though it is considered a long-term investment scheme, you can opt for premature and partial NPS withdrawals. Of course, you can also withdraw funds after the scheme matures.
Understanding both NPS Tier I withdrawal rules and those for NPS Tier II withdrawal is crucial. This helps you follow the right procedure no matter which account you have. Remember that you can go about an NPS withdrawal online or offline.
Here are a few NPS withdrawal options that can help you manage this scheme better.
According to the existing rules, the maximum age limit of the scheme has been extended from 65 years to up to 70 years. The exit age for the scheme has also been revised to 75 years.
As an existing NPS account holder, you can contribute to this scheme even after the age of 60. This way, you can continue to invest and keep earnings returns for 15 years more. During this time, you can defer or postpone your NPS withdrawal in 3 ways:
Postpone just the lump sum withdrawal
Postpone just the annuity
Postpone both the lump sum and annuity
The above applies to you if you want to continue on with your investment. However, you can start your NPS withdrawal process after you reach 60 or superannuation age, depending on which occurs first.
NPS withdrawal rules after maturity vary according to the category you belong to. Here is a brief overview of NPS withdrawals across employee categories:
If you are a retired Government employee, you can withdraw 60% of the balance as a lump sum. You can also postpone your lump sum NPS withdrawal as per the relaxed criteria. However, you will need to invest at least 40% of the funds in annuity.
You may also choose to invest more than 40% in annuity based on your needs. The 40% rule does not apply if your total accumulated amount is lower than ₹5 Lakhs. In this case, you have the option to withdraw the entire amount.
If you are a Government employee opting for voluntary retirement, this is called a premature withdrawal. In this case, you have to invest at least 80% in the annuity. Here, you can opt for a complete NPS withdrawal if the total balance amounts to ₹2.5 Lakhs.
During unforeseen circumstances, such as the death before retirement age, your nominee gets the entire balance.
Even corporate sector employees have to follow specific NPS withdrawal rules on retirement. As such, you can withdraw up to 60% of your funds from NPS and invest at least 40% in annuity.
You can also invest more in annuity. In this case too, you can postpone your NPS withdrawal as per the extension. Similar to a government employee, you have the freedom to withdraw the entire funds from NPS if your total is ₹5 Lakhs or less.
For you to enjoy a voluntary exit as a corporate employee, your NPS account needs to have been active for at least 10 years. The other NPS premature withdrawal rule of 80% annuity investment in such cases are the same here too. You also have the option to withdraw the entire amount if it is ₹2.5 Lakhs or lower.
As a corporate sector employee, your nominee can access the funds in your NPS account in case of death.
Here’s a hypothetical example of NPS withdrawal after maturity of the scheme. Assuming you have accumulated an NPS corpus of ₹15 Lakhs, you can withdraw up to ₹9 Lakhs, which is 60%. The remaining ₹6 Lakhs, which is 40%, has to be invested in an annuity plan.
Keep in mind that there are no NPS Tier 2 withdrawal rules as you can withdraw from this account whenever you need funds. If you continue this account until maturity, you can withdraw all the funds.
These earnings are taxable. However, government employees can access tax exemptions on Tier II account investments on keeping funds locked for at least 3 years.
When it comes to partial withdrawal for NPS, the rules differ for Tier I. Here is a look.
Partial NPS Tier 1 Withdrawal Rules:
- Partial NPS withdrawal is allowed under specific circumstances such as:
1. Financing children’s education or marriage
2. Purchasing or constructing a home
3. Getting treatment for certain medical issues
4. Meeting expenses due to disability of investor or NPS subscriber
5. Financing self-development such as re-skilling
6. Financing a business enterprise
25% partial withdrawal from NPS Tier 1 is permitted if you complete 3 years in the scheme
Partial withdrawal is allowed 3 times during the investment timeline
No fees charged on partial NPS Tier I withdrawal
Partial NPS Tier 2 Withdrawal
No withdrawal restriction on Tier II accounts, as they are voluntary
Withdrawals here do not offer tax benefits
On closing the Tier I account, your Tier II account is closed automatically
Fill form UOS-S12 form for Tier II withdrawal
The withdrawal amount is disbursed in 3 days after you initiate the process
It is easy to complete your NPS withdrawal online. All you have to do is log in to the CRA NSDL website account using your Permanent Retirement Account Number and password. Complete the withdrawal form to initiate the process.
If you prefer the offline mode, you can fill in the relevant form and submit it along with the following details to the nearest NPS PoP. (Point of Presence refers to the service provider through which you operate your account.)
Your PRAN or Permanent Retirement Account Number
Your name and gender
Your address
Your PAN details
Your nominee information
Your date of birth
Your bank account details and IFSC code
Your bank name and address
Now that you are aware of the NPS withdrawal rules and processes, you access funds when you need to. This also allows you to plan your investments better. To build a strong portfolio for retirement and other goals, get all the information you need on Bajaj Markets.
Closing your pension account is termed as an exit in NPS.
You can initiate the withdrawal process when the scheme matures or upon superannuation. NPS withdrawal is also possible in the event of death, or when you want to opt for premature withdrawal for specific reasons.
You have to maintain an active NPS account for at least 3 years and can partially withdraw funds up to 3 times. You also need to meet specific conditions such as your child’s marriage or treatment of illness to be able to make a partial NPS withdrawal.
Lastly, partial withdrawal is capped at 25% of the contributions you have made.
No, you cannot get a loan against NPS. However, you can make a partial NPS withdrawal as per the prescribed conditions.
You can initiate an NPS withdrawal up to 3 times during the entire period that you subscribe in the scheme. This amount cannot be more than 25% of your contributions.
Once you withdraw your Tier I account, the Tier II account also closes automatically.
Yes, you can keep your Tier II account active as long as your Tier I type is open.
You will need to fill out a partial withdrawal form and submit a self-declaration about the purpose for partial withdrawal. You may also need to submit your bank documents.
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