The National Pension System (NPS) is a combined investment and pension scheme. It offers market-based returns by offering investment opportunities in equity and debt instruments. You can open an NPS Account through designated Points of Presence (PoP), such as, Axis Bank. While it fosters long-term savings and tax benefits, understanding the NPS withdrawal rules is crucial. Let us see in detail the withdrawal rules to know for NPS.
NPS has multiple withdrawal categories, such as:
Maturity withdrawal: This applies when you reach retirement age, which is 60 years.
- Up to 60% of the accumulated corpus is tax-free. This grants you immediate access to a significant portion of your savings.
- The remaining 40% is mandatorily used to purchase an annuity. This ensures a regular income stream throughout your retirement years. Remember, the annuity income is taxable as per your tax slab.
- If the accumulated corpus is Rs 5 lakh or less, you can opt for 100% withdrawal
Partial withdrawal
This allows for limited withdrawals during your NPS subscription period. If you have been an NPS subscriber for at least 3 years under specific circumstances, you can withdraw partially for the following reasons:
- Terminal or critical illness: Partial withdrawals from NPS are allowed for 14 specific diseases and life-threatening conditions, as specified by the PFRDA in its circulars, notifications or guidelines issued from time to time.
- Personal needs: You can withdraw funds from NPS for your child's higher education or wedding expenses, including for a legally adopted child. You can also withdraw if you need to purchase or construct a house.
You can partially withdraw funds a maximum of 3 times during the entire tenure, while maintaining a gap of 5 years between 2 withdrawals (except for medical emergencies). You can withdraw up to 25% of your contributions to NPS at any time, excluding any contributions made by your employer. Additionally, only 25% of your contributions made between 2 partial withdrawals can be drawn.
Premature withdrawal:
Employees taking a voluntary exit, i.e., before the superannuation age or 60 years , have an option for early exit from NPS.
- Allowed after 5 years of mandatory subscription
- You can withdraw the corpus as a lump sum if the amount is below Rs 2.5 lakh
- You can withdraw up to 20% of the corpus as lump sum if the amount is above Rs 2.5 lakh and use the remaining 80% to purchase an annuity
Payout on death of the subscriber:
In case the subscriber dies before maturity of the NPS account, the entire corpus is paid to the nominee/legal heir of the subscriber.
Also Read: Advantages and disadvantages of NPS
Wrapping up
NPS has proven to be a perfect long-term investment tool for creating a solid tax-saving retirement fund. You can plan your withdrawals based on your financial goals. Keep track of the NPS guidelines as they may change from time to time. Consult with a financial advisor if needed and understand NPS withdrawal rules to make informed decisions about your retirement savings.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
