Latest NPS Partial Withdrawal rules | Is NPS a good investment choice?

The Government of India rolled out the National Pension Scheme (NPS) for all the citizens of India from May 1, 2009 and for corporate sector from December, 2011.

The Centre made NPS scheme mandatory for all the employees who joined the service on or after January 1, 2004. It has since been adopted by most state governments also. Currently, NPS has more than 1.7 Crore subscribers with total Asset under Management (AUM) of more than Rs. 2 lakh crore.

National Pension System (NPS) offers two types of accounts – Tier I and Tier II.

The Tier 1 account is non-withdrawable till the person reaches the age of 60. Partial withdrawal before that is allowed in specific cases. After attaining 60 years of age, you are allowed to withdraw 60% of the total Corpus amount and at least 40% of the accumulated wealth in the NPS account needs to be utilized for purchase of annuity/pension plan when you turn 60 years.National Pension Scheme - How NPS Scheme works - Example - Illustration pic

On the other hand, the Tier II National Pension Scheme account is just like a savings account and subscribers are free to withdraw the money as and whenever they require. Tier 2 NPS Account does not qualify for tax rebate under section 80C of the Income Tax Act.

  • Latest Update : Contribution by government employees (only) under Tier-II of NPS will now be covered under Section 80 C for deduction up to Rs 1.5 lakh for the purpose of income tax provided there is a three-year lock-in period. This is w.e.f April, 2019.

In the latest rule change, PFRDA (Pension Fund Regulatory And Development Authority) has relaxed the withdrawal norms to the effect that now the subscribers can withdraw upto 25% of contributions starting from the third year of opening of NPS (National Pension System) account. These revised NPS Partial Withdrawal rules are effective from January 10, 2018.  (As per previous rule, partial withdrawals were not allowed in the first 10 years.)

Latest NPS Partial Withdrawal rules (2018)

The guidelines notified by the pension regulator stipulates the below terms & conditions, purpose, frequency and limits;

Latest new revised NPS Partial Withdrawal rules 2018 Medical treatment illness house flat purchase construction higher education pic

  • Quantum of Partial Withdrawal : You shall be permitted to withdraw accumulations not exceeding 25% of the contributions made by you and standing to your credit (but excluding contributions made by the employer), as on the date of application of withdrawal.
  • Purpose of Withdrawal : As per the guidelines you (NPS Subscriber) can make partial withdrawal for the following purposes:
    • For higher education of your children including a legally adopted child (or) for self.
    • Further, individual NPS subscribers who wish to set up a new business or acquire new business will also be allowed to make partial withdrawals from his contributions. (updated on : 04-May-2018)
    • For marriage of your children, including a legally adopted child
    • You can make partial withdrawal for the purchase or construction of residential house or flat in your name or in a joint name of your spouse. In case, you already own a residential house of flat (either individually or in the joint name), other than an ancestral property, no withdrawal under these regulation shall be permitted. (Related article : ‘What is an Ancestral Property? Definition & Important Legal rules‘)
    • If  you /your spouse, children, including legally adopted child or dependent parents suffer from any specified illness, a partial withdrawal request can be submitted by you or any of your family members. (Specified illness – which shall comprise of hospitalization and treatment in respect of the following disease) :
      • cancer
      • kidney failure,
      • Primary Pulmonary Arterial Hypertension
      • multiple sclerosis,
      • Coronary Artery bypass graft
      • Aorta graft surgery
      • Heart Valve surgery
      • Major Organ transplant
      • Stroke
      • Myocardial Infraction
      • Coma
      • Total Blindness
      • Paralysis
      • Accident of serious/life threatening nature
      • Any other critical illness of a life threatening nature as stipulated in circulars, guidelines or notifications issued by the authority from time to time.
  • Limits : To make a partial NPS withdrawal claim, you should have been contributing to NPS for a minimum period of 3 years. You can withdraw up to 25% of your contributions.
  • Frequency of partial withdrawals : You will be allowed to withdraw a maximum of three times during the entire tenure of subscription to NPS.
  • Tax implications : Kindly note that partial withdrawals are tax-exempt.

My Opinion on NPS :

Blog reader query on NPS investment is it worth to invest in NPS scheme

A long-term investment option for your retirement planning should ideally have below features;

  • It should be simple and easy to understand.
  • Should be flexible.
  • Should have high liquidity.
  • Should be a tax efficient product and ideally should fall under Exempt – Exempt – Exempt category.
  • You should be able to withdraw the whole corpus at the time of retirement and you should be allowed to re-invest the corpus as per your choice/requirements.

Retirement planning is a long-term goal, so when we are investing for a longer period, I prefer to invest in a simple, flexible, easy to understand, tax efficient & highly liquid investment option.

If it is mandatory for you to contribute to NPS then you do not have any choice but to contribute. If you want to make voluntary contributions then I believe that NPS is not a great investment avenue with the given product structure & current tax implications.

Continue reading :

(Image courtesy of Mister GC at FreeDigitalPhotos.net) (Source & Reference : PFRDA Circular) (Post first published on : 20-January-2017)

  • Animesh says:

    Sir, Pronam, I will be retiring from Bank service on 30Sep 2026.I will be getting 60% at a lump sum from NPS and rest 40% I have to Ask for an annuity pension. Can u tell me how much pension I may get and whether Still I have to continue contribution to NPS.

    • Sreekanth Reddy says:

      Dear Animesh,
      There is no need to contribute to NPS (mandatory contributions Tier-1) after the service period ends.
      The pension amount is dependent on the Annuity plan you chose (amount is based on the then prevailing annuity rates).

  • Ravi says:

    I have withdrawn the entire amount of less than Rs. 2 lacs on attaining 60 years. Out of this 40 % of withdrawal is taxable and balance 60 is taxable as per extant instructions.

    please advise under which column in ITR while submitting Income return for AY 2018-19,, this 60 % withdrawal amount can

    • Sreekanth Reddy says:

      Dear Ravi,
      After attaining 60 years of age, you are allowed to withdraw 60% of the total Corpus amount and at least 40% of the accumulated wealth in the NPS account needs to be utilized for purchase of annuity/pension plan when you turn 60 years.

      The 60% is allowed to remain in the account which can be withdrawn anytime before you complete 70 years. The account has to be closed on completion of 70 years of age.

      I believe that this 60% as and when received can be shown under the head ‘income from other sources’ .

      • Ravi says:

        I think NPS corpus amount can be withdrawn in full on completion of 60 years, if it is less than 2 lacs and Out of this 40 % of withdrawal is exempted and balance
        60 % is taxable as per extant instructions .

        Pl calrfiy

        • Sreekanth Reddy says:

          Dear Ravi,
          Yes, you are correct.
          In case the total corpus in the account is less than Rs. 2 Lakhs as on the Date of Retirement (Government sector)/attaining the age of 60 (Non-Government sector), the subscriber (other than Swavalamban subscribers) can avail the option of complete Withdrawal.

          However 60% of this withdrawal will be taxable.

  • Kumar says:

    Hi… Very Informative Artcle about this complex NPS…. I joined Railways in 2013 and contributing to NPS tier 1 since…. My total investments is more than 3L….Im planning to resign from govt job and joining a private comp…. Is there any option to close my NPS ac fully and withdraw all the money?
    Thank you Sree……

    • Sreekanth Reddy says:

      Dear Kumar,

      Exit from NPS Before 60 years of age or Normal Superannuation:

      You can apply for a pre-mature exit only after 10 years.
      In case, the total corpus is less than Rs. 1 Lakh, the subscriber can withdraw 100% as lump sum (40% of which will be tax exempt).

      Where the total corpus is more than 1 lakhYou can apply for a pre-mature exit only after 10 years.
      At least 80% of the accumulated wealth has to be used to purchase annuity and the rest (20%) can be withdrawn as lump sum tax free

  • Zulfikar Ali Ahmed says:

    Sir, I am a subscriber of NPS tier 1. My date of appointment in service is 9/10/2006. Am i eligible for partial withdrawal of amount from NPS due to construction of own house.

    • Dear Zulfikar,
      You can make partial withdrawal for the purchase or construction of residential house or flat in your name or in a joint name of your spouse. In case, you already own a residential house of flat (either individually or in the joint name), other than an ancestral property, no withdrawal under these regulation shall be permitted.

  • VIPAN VERMS says:

    MY CONTRIBUTION IS RS 150000 FOR THREE YEARS CONTRIBUTION PLUS INCREASE IN NAV. CAN I WITH DRAW FULL CONTRIBUTION FROM NPS A/C

  • Vipin Siddharth Ramteke says:

    I have NPS Tier 1 account can I withdraw from my Tier 1 account for my marriage

  • Anoop chouksey says:

    Is there any provision of nps withdrawal for self marriage?

  • Cvan says:

    I have few doubts about nps in general.

    1. Is there any option to move my existing equity investment within nps to corporate and government portion and vice versa? The choice to change the percentage twice a year is only for new investments, is that right?

    2. There is an option to withdraw from nps after 60 years of age in staggered manner for 3 years I believe. How does the annuity and taxable/non taxable withdrawal work in such cases?

    • Dear Cvan,
      1 – The asset allocation refers to existing accumulation corpus as well as future subscriptions. Kindly go through this PFRDA circular..
      2 – At least 40% of the accumulated wealth in the NPS account needs to be utilized for purchase of annuity/pension plan when you turn 60 years.
      Let’s understand this with an example : If your total corpus is Rs 100 at the time of retirement (60 years), you can withdraw Rs 60 as a lump-sum amount and Rs 40 (minimum) has to be used to buy an Annuity plan from a Life insurance company. Out of the sixty rupees, Rs 20 will be taxable as per your income tax slab at the time of retirement and the Rs 40 is tax-free amount. Kindly note that the taxes are applicable on the corpus amount and not just on the Gains. (The minimum quantum of investment in Annuity product depends on WHEN you choose to exit from the NPS account).

      • Cvan says:

        1. This question was nagging me for quite some time. Thanks a lot for clarifying!

        2. I am referring to following 2 points from faq at nps website:

        “Subscribers exiting NPS on account of Superannuation can opt for deferring the Withdrawal of their lumpsum share (maximum 60%) to a maximum period of 10 years or 70 years of age (whichever is earlier).”

        “As per PFRDA Exit Rules, subscribers exiting NPS on account of Superannuation or Pre-mature Exit can defer purchase of Annuity (minimum 40% & 80% is to be invested with ASP in case Withdrawal is due to Superannuation & Pre-mature Exit respectively) for a maximum period of 3 years.”

        So the question that I have is, that 60% that I can differ withdrawing for 10 years (not 3 years as in my first comment), can that be withdrawn in staggered manner/partially over that period of time? If so, then do we do the 40-20% calculation for every withdrawal?

        And in the second quote, does it mean that 40% of the corpus will be credited to my bank account at age 60 no matter what to invest in annuity in next 3 years? Or can that withdrawal of 40% be deferred too like the rest of the amount?

        • Dear Cvan,
          I have always believed that NPS is a complex product and I am sure 90% of its investors do not have clear cut idea about the features of this product.
          One can stay away from NPS unless it is mandatory to invest (like for Govt employees).

          Yes, 60% withdrawal can be deffered. I have read it sometime back that as per the PFRDA the lump sum amount (60%) can be withdrawn in up to 10 annual installments till the age of 70. Please note the installments need not be equal. Kindly go through this PFRDA Circular..

          ” Deferment of lump sum: The lump sum can be deferred which can be withdrawn at any time between superannuation and 70 or every year till age of 70 years, subscriber has to give in writing in the specified form at least fifteen days before the attainment of age of superannuation ,provided the subscriber agrees to bear the maintenance charges like CRA ,PFM etc.”

          “Annuity purchase can also be deferred for maximum period of 3 years. Subscriber has to give in writing in the specified form at least fifteen days before the attainment of age of superannuation. If the death of the subscriber occurs before such due date of purchase of an annuity after the deferment, the annuity shall mandatorily be purchased by the spouse.” (You refer this link..)

      • Cvan says:

        A follow-up on the first question. Does nps do automatic rebalancing to maintain asset allocation ratio? I checked my account, I could not see any such activity last few years. Is there any way to do that?

        • Dear Cvan,
          I believe that NPS subscribers, other than government employees, can choose between two options for how they select allocation to different funds. Both active choice and auto choice give you some control over where your money is invested. Rebalancing (reallocation) among the asset classes is done automatically on the date of birth of the subscriber.

          • Cvan says:

            I checked few years transaction statement but I don’t see any automatic movement in units other than my contribution and charges. Can you please reference any literature that states that they do automatic rebalancing? Is it may be for one of the choices – auto vs active?

          • Dear Cvan ..The option should have been AUTO..

  • RAHUL KULKARNI says:

    Sir,

    In 2016 and in 2017 i invested 50,0oo rs each year.Now after reading your views i feel i shouldnt have invested in NPS.
    What to do now ? As i received mesg from NPS to pay for year 2018.How to exit from it? or should i continue investing in it in small minimum amount to keep it continue till end?

  • Vishal Miglani says:

    Hi Sreekanth,
    As per my understanding 40% commutation is allowed tax free and remaining 20% will be considered in income of that year. Correct me if guidelines is something different.

    • Dear Vishal,
      You If your total corpus is Rs 100 at the time of retirement (60 years), you can withdraw Rs 60 as a lump-sum amount and Rs 40 (minimum) has to be used to buy an Annuity plan from a Life insurance company. Out of the sixty rupees, Rs 20 will be taxable as per your income tax slab at the time of retirement and the Rs 40 is tax-free amount. Kindly note that the taxes are applicable on the corpus amount and not just on the Gains. (The minimum quantum of investment in Annuity product depends on WHEN you choose to exit from the NPS account).

  • Vipan kumar verma says:

    If amount in the credit of nps below rs 200000 can it will be full withdrawal on attaining age of 60 years.kindly clarify.

    • Dear Vipin,
      If it is a Tier-1 account then, at least 40% of the accumulated wealth in the NPS account needs to be utilized for purchase of annuity/pension plan when you turn 60 years.
      After attaining 60 years of age, you are allowed to withdraw only 60% of the total Corpus amount.

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