NPS Withdrawal 2024 : Check Process, Rule, limit & More

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The National Pension System (NPS) was introduced to offer financial security to citizens by providing them with a monthly pension amount post their retirement. However, there may be circumstances where an individual would be in dire need of money to meet a financial emergency, for which, the NPS facilitates multiple withdrawal options. With COVID-19, the Government of India further eased the NPS withdrawal rules 2020 to cater to the financial needs of NPS subscribers.

NPS withdrawal or exit rules for subscribers

NPS investments, in general, can be withdrawn both prematurely and post maturity with the rules varying as per the kind of exit from NPS withdrawals. Partial withdrawals are also allowed under NPS.

National Pension System withdrawal rules apply to Tier-I NPS accounts; no such restrictions exist for Tier-II accounts. While this might make the Tier-II account seem more appealing for investments, the account is not eligible for any tax benefits under Section 80C of the Indian Income Tax Act, in case of withdrawals. Thus, it may be worthwhile to delve into the various withdrawal rules for Tier-I accounts, as classified below:

What are NPS Withdrawal Rules?

The National Pension System (NPS) in India is growing among people and is considered a promising component of retirement plans. In this system, subscribers have a structured tool to protect their savings and guarantee financial security when they enter their post-employment years.

At its core, the NPS withdrawal rules are framed to suit different life stages of an individual, including retirement and unforeseen events such as early retirement or death. Upon retirement, subscribers can withdraw up to 60% of their accumulated corpus as a lump sum, which gives them the flexibility of financial freedom and helps them with immediate financial needs.

Furthermore, while there is a limited withdrawal allowance, the remaining corpus must be used to purchase an annuity, ensuring the individual enjoys a steady income in later years post-retirement. However, if someone opts for early retirement before the age of 60, the rules allow for up to 20% lump sum withdrawal, whereas 80% must be used to purchase an annuity, ensuring future financial security.

Similarly, in the unfortunate event of a subscriber's demise, this rule ensures the accumulated pension wealth is transferred to the nominee or legal heir,  giving them financial aid for their future.

NPS Withdrawal Rules for Corporate Sector Employees on Retirement

For corporate sector employees, NPS retirement withdrawal rules are specific and structured. If the corpus is Rs. 5 Lakh or less, subscribers can opt for a complete (100%) lump sum withdrawal, providing flexibility in managing smaller retirement funds effectively.

A structured format is crucial in this scheme: If the corpus exceeds Rs. 5 Lakh, 40% of the accumulated pension wealth should be used to buy an annuity, providing a steady financial situation after retirement. The remaining 60% can be withdrawn as a lump sum, striking a balance between post-retirement financial security and sudden unforeseen financial needs.

In the event of a subscriber's death after reaching 60 years or superannuation, nominees receive the entire accumulated corpus as a lump sum by default. However, nominees also have the option to choose an annuity, which will allow them to manage inherited pension wealth according to their financial needs and preferences.  

NPS Withdrawal Rules for Corporate Sector Employees on Early Retirement

Under the National Pension System (NPS), corporate subscribers need to maintain a mandatory subscription for at least five years. Upon reaching the withdrawal stage, they are free to withdraw their accumulated corpus in total, if the amount is Rs. 2.5 Lakh or less.

However, If the corpus exceeds Rs. 2.5 Lakh, a different rule applies, requiring at least 80% of the accumulated pension wealth to be used to buy an annuity. The annuity purchase will make sure the subscriber is not facing any financial issue, post retirement. Meanwhile, the remaining 20% of the money can be withdrawn for their personal or immediate financial need. 

NPS Withdrawal Rules Related to the Death of Corporate Sector Employees

In the unfortunate event of a corporate sector employee's death, under the NPS there are clear rules of withdrawal. The entire accumulated pension wealth (100%) will be given to the nominee or the legal heir of the deceased employee. This ensures the deceased employee's family has immediate access to the funds with no need for an annuity purchase. The prompt and complete transfer of the pension wealth provides financial security when there is a difficult situation and urgent need for money.

NPS Withdrawal Rules and process for Government Employees

Government employees have specific NPS money withdrawal rules for government employees upon retirement. Upon reaching the age of 60 or superannuation, if the pension wealth is up to Rs. 5 Lakh, subscribers can fully withdraw the entire amount. For amounts exceeding Rs. 5 Lakh, NPS withdrawal process for government employees mandates that at least 40% of the corpus must be used to purchase an annuity. This annuity provides a monthly income to ensure financial security during retirement. The remaining 60% can be withdrawn as a lump sum to meet other financial needs.

For pension wealth exceeding Rs. 2.5 Lakh but less than Rs. 5 Lakh, government employees must use at least 80% of their accumulated pension wealth to purchase an annuity. The remaining 20% can be withdrawn as a lump sum, following the NPS withdrawal rules for govt employees.

NPS Withdrawal Rules for Government Employees on Early Retirement

When government employees opt for early retirement, if the total pension wealth is Rs. 2.5 Lakh or less, subscribers are eligible for a complete lump sum withdrawal. However, for amounts exceeding Rs. 2.5 Lakh, one should follow a structured approach and should use at least 80% of the corpus to purchase an annuity. This will make sure the subscriber is enjoying a monthly pension, meanwhile, the remaining 20% is provided as a lump sum for financial needs.

Additionally, subscribers are encouraged to continue participating in NPS even after shifting sectors, a process known as Inter Sector Shifting (ISS). This continuity is facilitated under the All Citizens Model, ensuring individuals can seamlessly maintain their retirement savings and benefits across different employment sectors.

NPS Withdrawal Rules for Government Employees in Case of Death

In the unfortunate event of a government employee's death, NPS withdrawal rules for govt employees allow the nominee or legal heir to withdraw the accumulated pension wealth as per specific provisions:

• Complete Withdrawal for Corpus ≤ Rs. 5 Lakh: If the pension corpus is Rs. 5 Lakh or less, the nominee can opt for a full withdrawal.
• Annuity for Larger Corpus: If the corpus exceeds Rs. 5 Lakh, 80% must be used to purchase an annuity, while the remaining 20% can be withdrawn as a lump sum by the legal heir.

These rules ensure that the family of the deceased government employee is financially supported during difficult times, following the standard NPS withdrawal process for government employees.

New NPS Withdrawal Rule 2023

The new NPS withdrawal rules of 2023 are as follows:

1. Self-declaration Removal for Government Subscribers: Effective January 1, 2023, government sector subscribers can no longer utilise self-declaration for partial NPS withdrawals online.
2. Document Upload Requirements: Subscribers must upload specific documents for withdrawal requests, including the NPS Exit/Withdrawal Form, Proof of Identity and Address, Proof of Bank Account, and a copy of their PRAN card to ensure timely annuity payments.
3. Mandatory Instant Bank Account Verification: PFRDA mandates instant verification of NPS withdrawals. CRAs perform verification via the penny-drop process, where Rs 1 is credited to verify the account. Failure prompts notification to the subscriber, nodal office, or PoP, followed by update and re-verification through prescribed methods.
4. Systematic Lump Sum Withdrawal (SLW) Facility: PFRDA will introduce SLW, which makes way for fixed withdrawals at regular intervals (monthly, quarterly, half-yearly, annually). These withdrawals can be done up to 60% of the total NPS corpus, with the remaining 40% used to purchase an annuity, without imposition of any additional tax.
5. Age-based Corpus Withdrawal: Subscribers can withdraw up to 60% of their NPS corpus between ages 60 and 75. This ensures financial flexibility while promoting sustainable income management in retirement.

Premature withdrawal or premature exit

• Withdrawals are allowed in the event of financial emergencies, during severe illnesses and other life events such as weddings, higher education, etc.
• Premature withdrawal can be made only after completion of three years from the date of opening the NPS account
• Only 20 percent of the corpus is allowed to be withdrawn and the remaining 80 percent is utilised to buy an annuity, both of which are taxable
• If the total corpus accumulated is less than or equal to Rs 1 lakh, the subscriber is allowed to withdraw the full amount, provided the account is a minimum of 10 years’ old
• Partial withdrawal from Tier-I NPS account is permitted in specific circumstances as mentioned below:
• Higher education of children
• Child’s wedding
• Purchase or construction of a plot or property
• Expenses towards skill development activities
• Establishing a start-up
• Critical illnesses that may include cancer, kidney failure, organ transplant, etc.
• Medical or any incidental costs incurred by the subscriber due to incapacitation or disability suffered by him/her
• The NPS withdrawal rules 2020 include Coronavirus under the ambit of critical illnesses and now allows partial withdrawal towards its treatment for the subscriber and his/her family
• Withdrawal is normally allowed only if the NPS account is at least 3 years old. The only exemption to this rule being expenses incurred towards meeting skilling/re-skilling and self-development purposes
• The subscriber is allowed to withdraw an amount of up to 25 percent of his/her contribution only
• Such partial withdrawals are allowed only three times from the date of account subscription till the subscriber reaches the age of 60 years

NPS Withdrawal After Maturity

• Once the subscriber attains the age of 60 years, he/she is allowed to withdraw up to 60 percent of the corpus amount without attracting any tax
• The remaining 40 percent of the corpus must be used to buy an annuity to provide a monthly pension to the subscriber post-retirement
• The monthly pension amount is taxable, depending on the slab rate of the investor
• The NPS withdrawal rules for less than 2 lakh or corpus amount accumulated up to 2 lakh in NPS Tier-I account allow the subscriber to claim 100 percent withdrawal once he/she attains the age of 60 years

NPS withdrawal rules in case of death of subscriber

The NPS withdrawal rules in case of death of a subscriber allow the payment of the entire corpus accumulated to the deceased’s nominee(s)/legal heir.

The nominee(s) will need to furnish the following information along with duly filled withdrawal forms to claim the accumulated NPS corpus of the deceased subscriber:

• Original PRAN card
• Photo Identification proof and address proof for KYC purposes
• Duly filled advanced stamped receipt, cross-signed by the claimant/nominee on the revenue stamp
• Claimant’s bank proof in the form of a cancelled cheque/bank certificate/copy of bank passbook containing claimant’s photo and self-attested by the claimant
• Original death certificate of the subscriber as issued by the Registrar of birth and death

In case of a nominee who is a minor, his/her guardian may, on the minor’s behalf, submit the withdrawal form along with the birth proof of the minor.

Conclusion

The NPS withdrawal process can be initiated both online and offline. The online withdrawal process can be initiated on any business day from the comforts of home. This can be done through the subscriber’s NPS online account, using the PRAN ID and password. For offline withdrawals, separate withdrawal forms need to be filled as per the type of withdrawal chosen.

FAQs

Where can I find NPS withdrawal forms?

NPS withdrawal forms are available on the NSDL CRA website and at Points of Presence (PoP).

What are the different types of withdrawal forms?

The primary types are forms for superannuation, premature exit, and partial withdrawal.

What are the conditions for partial withdrawal from a Tier 1 account?

Yes, partial withdrawals are allowed after three years of subscription, as PFRDA prescribes.

Can I request a withdrawal from my NPS account online?

Yes, NPS allows online withdrawal requests through the NSDL CRA website.

What is the tax benefit on NPS partial withdrawal?

Under the tax benefits, subscribers can have 25% of the subscriber's contributions. This comes under Section 10(12B) of the Income Tax Act.

What documents are required for NPS withdrawal?

Withdrawal form, PRAN card, identity proof, address proof, bank account proof, and a canceled cheque is needed.

Can I withdraw some amount during my tenure in NPS and still continue to subscribe to my NPS account?

Yes, partial withdrawals are allowed for specific purposes without impacting ongoing contributions.

T&C

DISCLAIMER

The contents of this document are meant merely for information purposes. The information contained herein is subject to updation, completion, revision, verification and amendment and the same may change materially. Know More

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