The Indian Government started the NPS (National Pension System), a voluntary retirement scheme backed by the Pension Fund Regulatory & Development Authority (PFRDA) in 2004. By opening the NPS scheme account, you can save funds for your post-retirement life i.e., exit at 60 to use the saved funds in NPS to meet your retirement needs. Initially, this financial scheme was started for the Indian government employees and later was extended to all citizens with the option to join voluntarily. After you select on the online NPS account opening option and your investment application is approved, you are provided with a 12-digit permanent retirement account number (PRAN) wherein all your activities linked with NPS are recorded.
Under this scheme, you can make an NPS contribution online or offline until you reach your retirement age. Once you reach your retirement age, you are allowed to withdraw a particular corpus amount and you must invest the balance amount in an annuity plan to draw a mandatory pension. The NPS pension is received from Annuity Service Providers or Life Insurance Companies under the PFRDA. However, premature exit or partial withdrawals too are permitted in the scenario of NPS, provided you meet specific parameters. Discussed are the NPS withdrawal rules, you must be aware of.
NPS partial withdrawal rules
Partial withdrawal in the case of NPS tier 1 is permitted if you need some money. However, if you are a government employee, you cannot make NPS online withdrawal. As of 1st January 2023, government employees can partially withdraw funds from NPS through self-declaration. This means, if you are a government employee, then you must submit a withdrawal request form to your nodal office. But to make the withdrawal also there are certain conditions that you must fulfil. These include –
The withdrawal amount must not cross 25% of your individual voluntary contribution.
You must be an NPS subscriber for at least three years.
Reasons according to which you can request partial withdrawal –
- Child’s higher education
- Child’s marriage
- Purchasing a home or flat in your name. But if you already have a home under your name, you cannot use this option
- Any skill development course undertaken by the subscriber
- Severe medical conditions like an organ transplant, kidney failure, Covid19 medical expenses, etc.
- Other diseases as mentioned by PFRDA
NPS withdrawal rule on approaching retirement age –
Currently, you are allowed to withdraw up to 60% lump sum tax-free corpus from your NPS while the remaining corpus is headed towards an annuity plan to endow you with fixed monthly pension. According to NPS rules, you can withdraw the entire corpus if it is equivalent to or less than Rs 5 lakh with no need to buy the annuity scheme. Alternatively, if the corpus is more than 5 lakhs, then 60% portion is tax free withdrawal. While making NPS withdrawals is free of tax, annuity earned is taxed as per your income tax slab.
Note that, you as an NPS subscriber can avail a tax deduction on your NPS of up to Rs 2 lakh as per Section 80 C & 80CCD(1B). Moreover, the returns generated on NPS contributions are even tax exempt. As tax benefits are extended on your lumpsum withdrawal, NPS qualifies for EEE (exempt-exempt-exempt) status.
NPS withdrawal after maturity
According to the current rules for building a retirement fund, the upper age limit to open an NPS scheme voluntarily is 70 but the age to make an exit is 75 years. Remember that if you are a prevailing NPS subscriber, you can continue with NPS investment beyond 60 years, but you can extend your account until 75 years of age. Note that, as NPS is a scheme that encourages you to form a retirement fund, you must remain invested in NPS for an extended time period to build a higher corpus. Withdrawal rules here too are the same as in the case of maturity or when approaching retirement age. It means you can withdraw up to 60 per cent of the corpus as lumpsum while the rest is headed towards an annuity plan.
Conclusion
You are allowed to withdraw NPS either prematurely or on maturity. However, there are different rules for distinct withdrawal cases. Remember, like any financial instrument, NPS withdrawal too has specific rules and regulations which you must ensure to abide by. So, before you make the decision to withdraw your NPS contribution online or through offline mode, ensure to go through the rules mentioned above for different withdrawal scenarios for complete clarity.
