Understanding the Key NPS Withdrawal Rules for Indian Investors

The National Pension System (NPS) is a popular retirement savings product among Indians. However, like any investment avenue, it is governed by certain rules, especially when it comes to exit and withdrawal. In this article, we will delve into the latest NPS withdrawal rules effective in 2024 to help you plan your retirement savings better.

Normal NPS Exit Rules

- When an NPS subscriber reaches the age of 60, or superannuation, they must use at least 40% of the accumulated NPS pension corpus to purchase an annuity, which will provide a fixed lifelong pension. The remaining corpus, up to 60%, can be withdrawn tax-free as a lump sum.

- Of the 60% lumpsum commuted, the subscriber can proceed for Systematic Lumpsum Withdrawal (SLW)

- If the total accumulated NPS corpus is less than Rs 5 lakh, the subscriber can make a 100% lump sum withdrawal.

- Deferment: Subscriber can exercise annuity deferment for 3 years and withdraw the amount in equal installments.

Interestingly, NPS subscribers can choose not to Exit NPS at age 60 and instead, they can continue to contribute to the NPS account up to the age of 75 to further grow their NPS corpus. They can also exit at any point between the age of 60 and 75 by inputting online withdrawal request.

Premature NPS Exit Rules

In the event of a premature exit, i.e., before the age of 60, the subscriber is required to use a minimum of 80% of the accumulated NPS corpus to purchase an annuity. The remaining 20% (or less) can be withdrawn tax-free as a lump sum, as long as you have invested in the NPS for a minimum of 5 years. Here it is important to note, if the value of NPS corpus is less than equal to INR 1.5 lacs then 100% withdrawal is allowed.

However, in the unfortunate event of the death of the NPS subscriber before retirement, the nominee can withdraw the full accumulated amount as a lump sum or choose an annuity plan.

Partial NPS Withdrawal Rules

Partial withdrawals from the NPS are subject to specific rules. These withdrawals can only be made if the subscriber's NPS account has been active for at least three years. Also, there is a limit on the amount that can be partially withdrawn from Tier-I NPS. The limit is up to 25% of only the subscriber’s own contribution.

The withdrawal can only be made for clearly defined expenses like children’s higher education, children’s marriage, construction/purchase of the first house, treatment of 13 critical illnesses for self, spouse, children, and dependent parents, and to starting a new business venture

NPS Tier-II Account Withdrawal Rules

For NPS Tier-II accounts, you are free to withdraw as and when you require. But your contributions to the NPS Tier Account don’t qualify for a tax rebate either. For NPS contributing government employees, their contributions to the NPS Tier-II account are eligible

Final Thoughts

In conclusion, the NPS provides a structured avenue for long-term savings and retirement planning for Indian citizens. The rules governing the withdrawal and exit from the scheme aim to maintain a balance between providing a regular income post-retirement and allowing some flexibility for subscribers to meet their financial needs.

FAQs

1.Can I withdraw money from my NPS account before retirement?
Yes, partial withdrawals from your NPS account are allowed under certain conditions. You must have been an active subscriber for at least 3 years, and the withdrawal can only be made for specific purposes like children’s higher education, children’s marriage, purchase of a first house, treatment of critical illnesses, or starting a new business venture. A maximum of 3 such withdrawals are allowed during the tenure of the NPS subscription.

2.What happens to the NPS corpus if the subscriber dies before retirement?

In the event of the death of an NPS subscriber before retirement, the entire accumulated corpus can be withdrawn by the nominee as a lump sum or choose an annuity plan.

Disclaimers

*Tax benefits are subject to changes in tax laws. Kindly consult your financial advisor for more details.