National Pension Scheme: How To Withdraw NPS Corpus From Tier 1 & Tier 2 Accounts?

The National Pension Scheme (NPS) was introduced in January 2004 as a contribution pension scheme. Governed by Pension Fund Regulatory and Development Authority (PFRDA), in NPS, a government employee contributes towards a pension from their monthly salary along with a matching contribution from the employer. The funds are then invested in earmarked investment schemes through Pension Fund Managers. The objective of NPS is to provide old-age income, reasonable market-based returns over the long term, and extend old-age security coverage to all citizens. It's currently among the most popular retirement schemes available in India backed by the government.

Under NPS, subscribers can invest in two types of accounts namely Tier-1 and Tier-2. Notably, the Tier-1 account is mandatory for investing in NPS, while Tier-2 is optional. Moreover, without a Tier-1 account, a Tier-2 account cannot be opened.

Here's how a subscriber can withdraw NPS corpus from their Tier-1 and Tier-2 accounts:

As per Aditya Birla Capital's website, certain withdrawal rules in both accounts need to be followed.

For Tier-1:

1. For investors who have invested in NPS for three years, withdrawal of a maximum of 25% of the total contribution is permitted.

2. An investor may apply only three times for partial NPS premature withdrawal during the entire tenure of investment.

3. An NPS withdrawal form Tier 1 online is available on the official website.

4. The NPS partial withdrawal online process can be carried out free of cost.

5. As per PFRDA, partial withdrawals from NPS Tier-I account are permitted for the following reasons:
- Higher education (self/spouse/children)
- Children's marriage including that of legally adopted children
- Construction/purchase of residential accommodation in the subscriber's name or jointly with his/her spouse. (Not applicable if subscriber already owns a house)
- Treatment of critical illnesses of the subscriber or dependents i.e., spouse, children and /or dependent parents. Examples of some critical illnesses are serious accidents, coma, stroke, paralysis, cancer, kidney failure, organ transplants, heart surgeries like bypass, replacement of valves, etc.

Here's a step-by-step guide to withdrawing corpus from NPS' Tier-1 account:

Online Method:

Step 1: Subscribers will need to visit the official website of NSDL-CRA.

Central Recordkeeping Agency (CRA) is the first of its kind venture in India which is carrying out the functions of Record Keeping, Administration and Customer Service for all subscribers under NPS. CRA shall issue a Permanent Retirement Account Number (PRAN) to each subscriber and maintain a database of each Permanent Retirement Account along with recording transactions relating to each PRAN.

Step 2: Once the website page opens, enter your user ID (PRAN) and password to log in.

Step 3: You will find a tab titled "Transact Online". Once clicked on the tab, select the option of 'Withdrawal'.

Step 4: From the available options, select the 'Partial Withdrawal From Tier-1' option.

Step 5: You will be required to confirm your PRAN once again and then click on 'Submit'.

Step 6: You will be directed to a page where you will be required to select the percentage of funds to be withdrawn along with the reasons to withdraw.

Step 7: After selecting the percentage of funds to be withdrawn and providing the reason, you can click on 'Submit'.

Following this, a form will be generated that subscribers will be required to submit at the nodal office including documents such as original PRAN card, KYC-related documents, advance stamp receipt, bank-related documents such as letterhead, passbook, certificate or cancelled cheque. And lastly, you will need to submit a request-cum-undertaking form if you are withdrawing the entire corpus from the Tier-1 account.

In the case, of Tier-2 accounts:

Withdrawal can only be made through points of presence service providers (POP-SPs). The subscriber must fill out the UOS - S12 form along with relevant documents following which the POP-SP initiates the withdrawal process. Disbursal is completed within three days.

Also, in Tier 2, there are no restrictions on withdrawals about the amount/purpose. Lastly, there are no tax benefits as well.

But it also needs to be noted that upon exit from a Tier-1 account, the Tier-2 account gets closed automatically. The Subscriber is required to initiate an online Tier-2 withdrawal request along with a Tier-1 Account.

In terms of tax benefits, these are available in case of Tier-1 withdrawal. Such as:

Lump sum Withdrawal - In case of exit upon attaining the age of superannuation, lump sum withdrawal i.e. 60% of the total accumulated pension wealth is tax exempted.

Annuity - The amount utilized for the purchase of annuity at exit upon attaining the age of superannuation is tax exempted. However, the annuity income (pension) received will be taxed in the year of receipt as per the applicable tax slab of the subscriber.