NPS Withdrawal Rules: Here's Everything You Should Know

NPS or the National Pension System is a retirement savings scheme that allows investors to make defined contribution for securing their future in the form of pension. The investment vehicle has gained traction of late due to the tax benefits, flexibility as well as returns offered.

So, if you too are building your retirement portfolio or rejigging the same, here is detailed withdrawal rules for NPS:

Partial withdrawal from NPS before retirement

Under NPS while you can open two accounts i.e. Tier I and Tier II, it is the Tier I or main retirement account in respect of which you need to understand the withdrawal rules. The second Tier II account is typically a savings account which you can open voluntarily and with it there comes no withdrawal restriction.

Now coming to the Tier I account, partial withdrawal is allowed from it before retirement, subject to some restrictions.

As per the FAQ on NSDL e-Gov site, for the partial withdrawal the subscriber should be invested in the scheme for atleast 3 years. Further withdrawal amount shall not exceed 25% of the contributions made by the subscriber. Withdrawal can happen maximum of three times during the entire tenure of subscription. Reasons for which withdrawal can be made includes for higher education of children, child marriage, for the purchase or construction of residential house and critical illness treatment. Also, the withdrawal option is allowed in case you wish to start some business.

Criteria and conditions for exiting the scheme prematurely

This option is again allowed subject to some conditions i.e. one you cannot make such claim until and unless you complete 10 years in the scheme. Nonetheless, if you started investing towards the scheme after the age of 60 years then the period is 3 years.

Now, under such a condition you are allowed to withdraw up to 20% of the corpus in the scheme as lump sum and the remainder 80% has to be mandatorily deployed to purchase annuity from empanelled life insurers. This annuity shall then be used to pay you pension after you retire or turn 60.

Also, if the total NPS corpus is below Rs. 2.5 lakh then the entire amount shall be paid to you as lump sum.

Furthermore, in case of pre-mature exit, as per the FAQs, pension starts immediately, if Subscriber fulfils the Age and Corpus criteria for purchasing Annuity (depending upon choice of ASP and Annuity scheme of the respective Annuity Service Provider).