National Pension Scheme (NPS) Withdrawal Rules

What are NPS Withdrawal Rules? 

The Indian government introduced the National Pension Scheme under the Pension Fund Regulatory and Development Authority (PFRDA). There are specific National Pension Scheme withdrawal rules using which an investor can make partial withdrawals after three years. The rules are stated below:

Basic Documents Required for NPS Withdrawal 

The documents needed for following the National Pension Scheme withdrawal rules are as follows:
• Valid ID proof such as PAN card, Aadhaar card, Passport, etc.
• Address proof documents like ration cards, electricity bills, etc.
• Original copy of the PAN card.
• Bank's letterhead, cancelled cheque, passbook, bank certificate with proof of account number, holder name, and IFSC code. 
• Submitting the request and undertaking form for those entitled to a complete withdrawal is essential.
• Duly signed and filled advance stamped receipt, revenue stamp of the NPS subscriber.

NPS Withdrawal Rules for Corporate Sector Employees on Retirement 

Employees belonging to the corporate sector are eligible for withdrawing approximately 60% of their NPS corpus. This is a lumpsum amount after one attains superannuation age, i.e., 60 years. The rest 40% shall be utilised for purchasing the annuity plan provided by NPS. Nevertheless, in case the total corpus accumulated is Rs 5 lakh or above, investors are eligible for 100% withdrawal. 

NPS withdrawal rules for corporate sector employees on early retirement 

Employees in the corporate sector may request withdrawals from their NPS account in the event of an early retirement. But in this instance, you ought to hold onto your investment for five years.  

Eighty percent of their entire corpus must be used to purchase annuity plans; the other twenty percent will be paid out in lump sums. Nonetheless, 100% of the corpus would be paid in one single amount if it exceeds Rs 2.5 lakh.

NPS Withdrawal Rules Related to The Death of Corporate Sector Employees

The nominee or subscriber's legal successor receives the whole accrued corpus in the event of an unexpected demise. If they so want, nominees may purchase an NPS annuity plan.

NPS Withdrawal Rules for Govt Employees on Retirement

Once they reach retirement age (60 years old), employees in the public sector are also eligible to take a lump sum withdrawal of up to 60% of the NPS corpus. Annuities need to be purchased with the remaining 40%. The whole sum may be withdrawn up to a maximum of Rs 5 lakh.

NPS Withdrawal Rules for Govt Employees on Early Retirement

A government employee opting for voluntary retirement is required to spend at least 80% of the NPS corpus to buy annuities under the existing NPS withdrawal regulations. In the event that the corpus exceeds Rs. 2.5 lakh, the total money may be withdrawn. These government employee NPS guidelines are intended to protect their post-retirement financial stability while providing flexibility for individuals with lower NPS contributions.

NPS Withdrawal Rules Related to The Death of Govt Employees Rules  

If the subscriber is a government employee and passes away too soon, the nominee or their legal successor will get the whole value of the NPS corpus, up to a maximum of Rs. 5 lakh, in a lump sum. Nonetheless, the annuity option is available to the nominee. 

If the corpus exceeds Rs 5 lakh, the dependant must use 80% of the corpus to purchase a default annuity plan, with the remaining 20% being given as a lump sum to the nominee or legal successor. 

If the Subscriber's father, mother, and spouse are the only living members of their dependant family, then their surviving children will get 80% of the corpus. Additionally, the legal heirs will receive the corpus if there are no children.

New National Pension Scheme (NPS) Withdrawal Rule 2023 

The new National Pension Scheme withdrawal rules are:
1. Beginning on January 1, 2023, subscribers in the government sector will no longer be able to use the NPS partial withdrawal online method via self-declaration.

2. In order to receive timely annuity payments, members must attach specific papers when submitting withdrawal requests as of April 1st, 2023. Among these documents are:
• Proof of Address and Identity as per the Withdrawal form
• NPS Exit/Withdrawal Form
• Copy of PRAN card
• Proof of Bank Account

3. In accordance with the most current PFRDA update, which was released on October 25, 2023, processing withdrawals from the NPS programme or changes to bank account information requires immediate bank account verification. CRAs, which are in charge of maintaining records, doing administrative tasks, and offering customer support to NPS members, must now confirm the account via the penny-drop method. Rs 1 will be credited to the subscriber's account throughout this procedure to validate the account.

Should the penny drop procedure not work, the subscriber will be notified by CRA. Concurrently, they will also communicate the verification failure to the relevant POP (which helps to establish and manage NPS accounts) or nodal office (which deals with CRA on behalf of NPS subscribers). Then, using the S2 form or any other approved technique, the Nodal officer or POP will update the information in the CRA system. After that, the CRA can handle requests for withdrawal or exit, including using the penny drop method to re-verify the bank account.

4. In another update, the NPS regulator PFRDA will soon allow you to periodically withdraw a certain amount from your NPS funds using the Systematic Lump Sum Withdrawal (SLW) feature. In other words, you will now be able to take out a predetermined amount from your NPS corpus on a monthly, quarterly, half-yearly, or annual basis. There is no tax on these National Pension Scheme withdrawal rules, and it is relevant for a maximum of 60% of your whole corpus. An annuity plan must be purchased by NPS subscribers with the remaining corpus (at least 40%).

Just one more thing. Up to the age of 75, you must withdraw the 60% corpus. This indicates that you have 15 years to remove the corpus between the ages of 60 and 75.

NPS Partial Withdrawal Rules 

As previously stated, the aforementioned age and other parameter limitations apply to the National Pension Scheme withdrawal rules.

NPS Tier I Partial Withdrawal Rules:

◦ In some circumstances, NPS subscribers may elect to withdraw a portion of their Tier I corpus. For example, treatment of chronic health issues, higher education, child marriage, and so on.
◦ After three years of NPS investment, an investor can withdraw up to 25% of the total contribution. 
◦ An investor may request for partial NPS early withdrawal three times throughout the tenure, and all partial withdrawals are free of charge.

NPS Tier II Partial Withdrawal Rules:

◦ Tier II withdrawal is only available via POP-SP. The subscriber must complete the UOS - S12 form and provide supporting documentation. The POP then begins the NPS withdrawal process, which is finished within three days.
◦ Tier II accounts are voluntary accounts; thus, there are no withdrawal limitations. 
◦ An investor can withdraw any amount they want for any reason. 
◦ Tier II accounts do not receive tax benefits.

Conditions for NPS Withdrawal (Partial): 

According to the PFRDA, partial NPS rules for withdrawal of Tier I accounts are permitted for the following reasons:
◦ Higher education for children
◦ Marriages of children
◦ Purchase or building of residential property. This might be in the name of the investor alone or jointly with the spouse. This does not apply if the investor already owns a home.
 ◦ Critical sickness treatment for the investor, their children, spouse, or dependant parents. Cancer, organ transplants, kidney failure, heart procedures such as graft surgery, coronary artery bypass, heart valve surgery etc., coma, stroke, paralysis, and serious accidents are examples of severe diseases.

NPS Withdrawal After Maturity 

The following are the National Pension Scheme withdrawal rules at maturity:

NPS Maturity Withdrawal Rules for Tier I Account: 

When the subscriber reaches the age of 60, he or she can take 60% of the money as a lump payment. The remainder can be used to purchase an annuity. If the corpus is less than Rs. 2.5 lakh, full withdrawal will be applicable.

NPS Maturity Withdrawal Rules for Tier II Account: 

Tier II accounts have no NPS withdrawal requirements. A subscriber may withdraw the entire amount without limitation.

Eligibility for Partial Withdrawal 

◦ A subscriber may withdraw only three times throughout the term of his or her membership.
◦ A subscriber may withdraw up to 25% of his or her payments to this scheme.
◦ A subscriber must have been a member of this scheme for at least three years to be eligible for partial withdrawal.
◦ Partial withdrawal is permitted only in extraordinary circumstances, such as child education, marriage expenditures, home building, or medical emergencies.

The purpose of these NPS withdrawal guidelines is to make the scheme's operation easier for subscribers to understand and aid in their retirement planning.

Frequency and Limits of Partial Withdrawal 

Following a three-year lock-in period, 25% of the whole corpus may be withdrawn at a time in tax-free partial NPS withdrawal rules. During the course of their NPS membership, subscribers may withdraw a maximum of three times.

NPS Premature Withdrawal Rules 

The PFRDA allows an investor, subject to certain restrictions, to take their NPS funds and leave their investment before reaching 60 years of age and superannuation.

NPS Premature Exit from Tier I 

Investors have the option to cease making contributions to their NPS Tier I accounts before to retirement, which is known as a premature departure. Nevertheless, you may only use this option after investing for ten years. The following are the NPS withdrawal rules for early withdrawal from Tier I accounts:
• ≤ Rs. 1,00,000: Withdrawn in lumpsum without tax
• > Rs. 1,00,000: Up to 20% of the corpus can be withdrawn, subject to income tax. 80% must be invested in annuities.

NPS Premature Exit from Tier II 

For tier 2 accounts, NPS premature leave restrictions are straightforward. The investor has the option to withdraw the whole amount whenever they see fit. This makes it comparable to a standard savings account. On the other hand, the NPS premature exit procedure may be drawn out. The National Pension Scheme withdrawal rules guidelines are still in effect till 2021.

Time Period for NPS Withdrawal 

According to current NPS withdrawal rules, the following time periods should be considered when thinking about national pension scheme withdrawal from Tier 1 accounts:

On Maturity: 

The earliest an investor may take a withdrawal of NPS from the corpus if they want to wait until maturity is 60 years old, or superannuation age.

Premature Exit: 

The investor must wait at least ten years in order to withdraw from the NPS investment early, that is, before reaching superannuation age. As previously indicated, an investor may cease making contributions to the NPS system, but they may only withdraw 20% of the corpus. Annuities must be used to invest the remaining funds.

Partial Withdrawal: 

NPS tier 1 accounts do not allow for partial withdrawal of NPS until three years after the first deposit. From NPS accounts, an investor may withdraw up to three partial amounts. Nonetheless, there must be a minimum 5-year interval between each partial NPS removal.

How to Apply Online and Offline for NPS Withdrawal?

National pension scheme withdrawal options are accessible online and offline for both Tier 1 and Tier 2 accounts.

NPS Tier 1 Withdrawal: 

Online process of NPS Tier 1 Withdrawal: 

To withdraw NPS from your Tier 1 account online, you must first sign in to the CRA website. Log in using your PRAN number and password. After you've logged in, you must:
◦ Navigate to the Transact Online tab and select the Withdrawal option.
◦ Next, decide whether you want to retire from superannuation or make a partial or premature withdrawal. This will provide you with the appropriate NPS withdrawal form.
◦ You will receive a system-generated withdrawal from NPS form after reconfirming your PRAN data.
• A completed copy of this form, as well as other supporting papers such as KYC data, PAN number, nominee details, and so on, must be given to the nodal office.

Offline process of NPS Tier 1 Withdrawal: 

The offline approach for withdrawing NPS is similar. The investor must complete the necessary forms, attach supporting documentation, and submit them to the local Point of Presence Service Provider (PoP/PoP- SP).

NPS Tier 2 Withdrawal: 

Online process of NPS Tier 2 Withdrawal:

On the CRA-NSDL website, you can submit an online request for withdrawal from NPS.

Offline process of NPS Tier 2 Withdrawal: 

For an offline request, the investor must complete a UOS-S12 form, attach supporting documentation, and submit it to the nodal office or point of contact. The request will be processed, and the funds will be released within three days.

Tax Implications on NPS 

Although NPS money withdrawal is tax-free, annuities are taxed based on the subscriber's income bracket. Payment is taxed in accordance with the year of payment. All partial withdrawals from NPS Tier-I accounts are free of charge.

Grievance Redressal as per Regulation 31 of PFRDA (Redressal of Subscriber Grievance) Regulations, 2015:  

Information about the appointed Ombudsman can be found on the PFRDA website at www.pfrda.org.in. Currently, Shri Narender Kumar Bhola has been designated as the new Ombudsman under the PFRDA (Redressal of Subscriber Grievance) Regulations, 2015.

Details of the Ombudsman are as given below: 

Shri Narender Kumar Bhola 

Pension Fund Regulatory and Development Authority  

B-14/A, Chatrapati Shivaji Bhawan,  

Qutab Institutional Area, Katwaria Sarai, New Delhi- 110016  

Chhatrapati Shivaji Bhawan,  
 

Email ID: ombudsman@pfrda.org.in  
 

Landline No.: 011 -26517507 (Ext: 188)

Conclusion

The NPS is not merely a retirement savings tool; it serves as a versatile financial instrument that can be utilised at various life stages. Use it judiciously to maximise its benefits. Understanding the National Pension Scheme withdrawal rules and conditions empowers you to make informed financial decisions. Planning ahead for different life scenarios ensures that you can make the most out of your NPS account. Staying updated on regulatory changes is essential for long-term financial planning.