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NPS Withdrawal Rules
You can partially withdraw up to 25% after 3 years, exit early after 10 years by taking 20% in cash and using 80% for an annuity, and withdraw up to 60% tax-free at retirement (100% if your corpus is small).
The National Pension System (NPS) is a long-term investment plan designed to help Indians build a retirement corpus while enjoying tax benefits. In this article, we will simplify all the NPS withdrawal rules, including partial, premature, and retirement withdrawals, and also explain the special rules for government employees.
NPS withdrawals are governed by the Pension Fund Regulatory and Development Authority (PFRDA). The rules depend on why and when you withdraw, whether before retirement, at 60, or for a specific purpose.
In short, these are the rules:
You can partially withdraw after 3 years for specific reasons.
You can exit early after 10 years, but you must use most of the amount to buy an annuity.
You can withdraw more freely after retirement, depending on your corpus size.
Let us look at each in detail.
You can withdraw a small portion of your own contributions for specific reasons without closing your account.
Allowed after 3 years of NPS enrollment.
Only from your own contributions (not the employer’s share).
Can be done up to 3 times during your entire NPS tenure.
Up to 25% of your own contribution balance can be withdrawn each time.
As per PFRDA guidelines, partial withdrawal is allowed for:
Children’s higher education or marriage
Purchase or construction of a first house
Critical illness (self, spouse, children, or parents)
Skill development or self-employment
Expenses due to disability or incapacitation
If you have contributed ₹10 Lakh to your NPS account, you can withdraw up to ₹2.5 Lakh (25%) for permitted reasons.
The table below illustrates the tax implications of NPS withdrawal:
|
Type of Withdrawal |
Tax Treatment |
|---|---|
|
Partial Withdrawal |
Fully tax-free |
|
Retirement (60%) |
Tax-free under Section 10(12A) |
|
Annuity (40%) |
Pension income is taxable each year |
|
Premature Exit (20%) |
Tax-free if conditions are met |
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As per the Pension Fund Regulatory and Development Authority (PFRDA), NPS subscribers can withdraw up to 25% of their own contributions after 3 years, 20% of the corpus before 60, and 60% tax-free at retirement, while the rest must be used to purchase an annuity.
Government employees follow the same rules, with full withdrawal allowed if their total corpus is ₹2.5 Lakh or less before 60, or ₹5 Lakh or less at retirement.
Now you know the NPS withdrawal rules, which will help you better plan your personal finances and retirement.
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