NPS Withdrawal

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What is NPS Withdrawal?

The Pension Fund Regulatory and Development Authority (PFRDA) regulates the National Pension System (NPS), a contribution-based pension scheme. It allows subscribers to save for their retirement while providing the flexibility to withdraw under certain conditions. The NPS withdrawal rules vary based on different circumstances, including retirement, voluntary exit, and partial withdrawals.

NPS Withdrawal Rules

Strict regulations govern NPS withdrawal to ensure financial security post-retirement. The primary types of withdrawals include:

Partial Withdrawal from NPS
Withdrawal on Retirement
Withdrawal on Voluntary Exit
Withdrawal after Maturity
Withdrawal in Case of Death of a Subscriber

1. In Case of Partial NPS Withdrawal

Partial withdrawals are allowed under specific circumstances:

A subscriber can withdraw up to 25% of their contributions (not including employer contributions).
Allowed only after three years of subscription.
Withdrawals can be made for specific reasons, such as:
- Higher education for children
- Marriage of children
- Purchase or construction of a house
- Medical treatment for critical illnesses
NPS account holders can make a maximum of three partial withdrawals during the tenure.

2. In Case of Retirement

Upon reaching the age of 60 years, an NPS subscriber can withdraw as per the following guidelines:

60% of the corpus can be withdrawn as a lump sum.
40% of the corpus must be annuitized (converted into a pension plan).
If the total corpus is less than Rs. 5 lakh, the subscriber can withdraw 100% as a lump sum without annuitization.

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3. In Case of Voluntary Exit

Subscribers can opt for a voluntary exit from NPS before retirement under the following conditions:

Allowed after 10 years of contribution.
20% of the corpus can be withdrawn as a lump sum.
80% must be annuitized.
If the total corpus is less than Rs. 2.5 lakh, the subscriber can withdraw 100% as a lump sum.

4. NPS Withdrawal Rules after Maturity

When an NPS account matures, the withdrawal options include:

60% lump sum withdrawal (tax-free)
40% annuity investment (taxable as per the subscriber’s income slab)
Subscribers can defer the withdrawal of the lump sum amount till the age of 75 years.
The annuity investment cannot be withdrawn.

5. NPS Withdrawal Rules in Case of Death of a Subscriber

If the subscriber dies before retirement, the nominee or legal heir can claim 100% of the corpus.
The nominee is not required to purchase an annuity.
A government employee must use 80% for an annuity and can withdraw 20%.

What is the Process for Withdrawal from NPS?

Steps to Withdraw from NPS:

Log in to the CRA system using the Permanent Retirement Account Number (PRAN).
Select the appropriate withdrawal option.
Fill out the withdrawal form and upload the required documents.
The Nodal Office or Point of Presence (POP) will process the request.
Once approved, they will credit the funds to the subscriber’s bank account.

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NPS Tier 1 vs. Tier 2 Withdrawal Rules

NPS Tier 1 Withdrawal

Tier 1 is the mandatory retirement account.
Regulations strictly control withdrawals and allow them only under specific conditions.
Partial withdrawals allowed only after three years and for specific purposes.

Tier 2 Withdrawal

Tier 2 is a voluntary investment account.
Withdrawals can be made anytime without restrictions.
No tax benefits under Section 80CCD(1B).

What are the Tax Implications on NPS Withdrawals?

Partial withdrawals from NPS are tax-free.
60% lump sum withdrawal at retirement is tax-free.
40% annuity investment is taxable as per the subscriber’s income slab.
100% withdrawal in case of a corpus below Rs. 5 lakh is tax-free.
Tier 2 withdrawals are taxed as per the individual’s tax slab.

Frequently Asked Questions

Can I withdraw my entire NPS corpus before retirement?

No, you can withdraw only 20% before retirement, and the remaining 80% must be annuitized.

How many partial withdrawals are allowed under NPS?

A maximum of three partial withdrawals are allowed during the tenure.

Is the withdrawal process for Tier 2 accounts different?

Yes, Tier 2 withdrawals have no restrictions and can be made anytime.

Can I withdraw NPS if my total corpus is less than Rs. 5 lakh?

Yes, if your total corpus is less than Rs. 5 lakh, you can withdraw 100% as a lump sum.

What happens if an NPS subscriber dies before retirement?

The entire corpus is transferred to the nominee without the requirement for annuitization.

Can I defer my lump sum withdrawal from NPS?

Yes, you can defer up to 75 years of age for lump sum withdrawal.

Is NPS withdrawal tax-free?

Partial withdrawals and 60% lump sum withdrawal at retirement are tax-free; annuity withdrawals are taxable.

How long does it take for an NPS withdrawal request to be processed?

Typically, the process takes 5-10 business days once the request is submitted and approved.

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