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NPS: Current Withdrawal, Exit And Taxation Rules Explained

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New Pension Scheme (NPS) is a pension fund backed by the government and regulated by PFRDA (Pension Fund Regulatory and Development Authority). This scheme aids in the accumulation of a retirement fund. This scheme is open to every Indian citizen those who are in the age group of 18 to 65 years. An individual of unsound mind or a current NPS holder, on the other hand, is not permitted to open a new account. As a result, an individual can only have one NPS account. Let's talk about the most recent NPS exit and withdrawal guidelines for 2021.

NPS premature withdrawal rules

NPS premature withdrawal rules

The NPS Tier 1 account matures once the subscriber reaches the age of 60, but you can keep your deposits until you reach the age of 70. You can withdraw up to 60% of your NPS corpus tax-free under current NPS withdrawal regulations for withdrawal after maturity. You must use the remaining 40% of the retirement savings to purchase an annuity. Upon retirement, the annuity gives the NPS subscriber a monthly pension. The monthly pension received is taxed at the investor's slab limit. This levy, though, would not take place at the time of withdrawal, but rather at the slab rate in the fiscal year in which the pension payouts are generated. In comparison to the NPS Tier 2 account, the NPS Tier 1 account has a number of withdrawal limits guidelines. The type of withdrawal and the amount withdrawn from the NPS Tier 1 account are the primary determinants of these withdrawal limits for the NPS.

NPS partial withdrawal rules
 

NPS partial withdrawal rules

Partial withdrawal is an alternative if you want to withdraw before reaching the threshold of superannuation, which is 60 years old. As a result, you are not permitted to withdraw fully. However, you can only withdraw to a certain amount. As a result, you can use this option to partially withdraw funds while keeping your NPS account active. You have the option to withdraw 25% of your own contribution at any time (with exception to employer contributions). To be eligible for a partial withdrawal, the subscriber must have completed three years of NPS service. He or she is allowed to withdraw up to 25% of his or her contributions. During the subscription period, the subscriber is only allowed to withdraw a limit of three times. He or she must submit this withdrawal application, along with the necessary documents, to the central recordkeeping agency or the National Pension System Trust, as the case may be, for approval. However, Tier II accounts allow you to withdraw only a part or the whole corpus without any restrictions respectively. There are no limitations on NPS Tier 2 withdrawals under new National Pension System regulations, but the restrictions on NPS withdrawal and withdrawal cap only extend to NPS Tier 1 withdrawals. Though it could seem to be a reason to spend more in the Tier 2 NPS account than the Tier 1 account, bear in mind that optional NPS Tier 2 contributions do not have tax benefits under Section 80C.

NPS withdrawal can be made for the following reasons

NPS withdrawal can be made for the following reasons

You are not permitted to withdraw funds from your NPS account according to PFRDA. There are some reasons to be met which are as follows:

  • For your children's higher education or for yourself.
  • Those who want to start a new business or buy a new business will be able to withdraw a portion of their contributions.
  • For the marriage of your children
  • You can consider taking a partial withdrawal for the purchasing or renovation of a residential house or flat which is on behalf of your name or your spouse. If you already have a residential house or flat, either individually or jointly, rather than ancestral property, you will not be able to withdraw under these rules.
  • A partial withdrawal request can be made by you or any of your family members if you, your spouse, children, including legitimately adopted children, or dependent parents suffer from any specified disease.
NPS withdrawal rules in case of death of the subscriber

NPS withdrawal rules in case of death of the subscriber

Upon the subscriber's death, the entire accrued pension corpus will be provided to the subscriber's nominee/legal successor in full. Along with the completely filled Withdrawal forms, the nominee/claimant must submit the following documents:

  • Valid PRAN Card
  • The Claimant must fill out the advance stamped receipt and cross-sign it on the Revenue stamp.
  • Identity and residence proof
  • As per the bank's authentication, a cancelled cheque with the claimant's name, bank account number, IFSC code, bank certificate is needed. A copy of a bank passbook is mandated, but it must include the claimant's photograph, name, and bank IFSC code, as well as be self-attested by the claimant.
  • Valid death certificate
  • All nominees registered in the CRA system must submit the withdrawal form.
How partial withdrawal under NPS can be made?

How partial withdrawal under NPS can be made?

Subscribers can file a partial withdrawal request online. Subscribers can also submit a physical partial withdrawal form (601-PW) along with supporting documents to POP, which will enable POP to conduct an online request. POP, on the other hand, should 'Authorize' the Withdrawal request in the CRA system. At this time, eligible Subscribers must submit their partial withdrawal application to their respective nodal officers/POPs, along with supporting documents to validate their request for partial withdrawals. In an effort to allow the partial withdrawal process easier for subscribers through online, and paperless, it has now been agreed to encourage Subscribers to allow partial withdrawal based on self-declaration,' mitigating the need to provide supporting documents to validate the reasons for partial withdrawal. To smooth up the procedure and ensure prompt settlement of partially withdrawn funds into Subscribers' bank account, partial withdrawal requests submitted electronically will be handled directly in the Central Record Keeping Agency (CRA) system, eliminating the need for authorization at the nodal office/POP point. You should log into your NPS account using your PRAN and password to trigger an exit request if you are exiting NPS via the online way. Though withdrawals from the tier 1 account are subject to certain limitations, withdrawals from the NPS Tier 2 account are not limited - you can request a withdrawal on any working day.

NPS Tax Benefits

NPS Tax Benefits

NPS withdrawals, unlike certain other section 80C provide tax benefits. Contributions to Tier 1 are tax-deductible which qualify under Section 80CCD(1) and Section 80CCD(1B). This ensures that you can place up to Rs. 2 lakh in an NPS Tier 1 account and claim a deduction for the whole sum, i.e. Rs. 1.50 lakh under Sec 80CCD(1) and Rs. 50,000 under Sec 80CCD(1B). Over and above the benefit of Rs. 1.50 lakhs allowed as a deduction under Sec 80CCD(1), an additional deduction of Rs. 50,000/- is available under Section 80CCD(1B). As a result, Section 80CCD(1) and Section 80CCD(1B) raises the cumulative exemption limit to Rs. 2.00 lakhs.

Read more about: nps national pension system
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