Withdrawal Rules to Know for NPS

March 22, 2021

Withdrawal Rules to Know for NPS

The National Pension System (NPS) was introduced to offer financial security to citizens by providing them with a monthly pension amount post their retirement. However, there may be circumstances where an individual would be in dire need of money to meet a financial emergency, for which, the NPS facilitates multiple withdrawal options. With COVID-19, the Government of India further eased the NPS withdrawal rules 2020 to cater to the financial needs of NPS subscribers.

NPS withdrawal rules for subscribers

NPS investments, in general, can be withdrawn both prematurely and post maturity with the rules varying as per the kind of withdrawals. Partial withdrawals are also allowed under NPS.

NPS withdrawal rules apply to Tier-I NPS accounts; no such restrictions exist for Tier-II accounts. While this might make the Tier-II account seem more appealing for investments, the account is not eligible for any tax benefits under Section 80C of the Indian Income Tax Act, in case of withdrawals. Thus, it may be worthwhile to delve into the various withdrawal rules for Tier-I accounts, as classified below:

Premature withdrawal or premature exit

  • Withdrawals are allowed in the event of financial emergencies, during severe illnesses and other life events such as weddings, higher education, etc.
  • Premature withdrawal can be made only after completion of three years from the date of opening the NPS account
  • Only 20 percent of the corpus is allowed to be withdrawn and the remaining 80 percent is utilised to buy an annuity, both of which are taxable
  • If the total corpus accumulated is less than or equal to Rs 1 lakh, the subscriber is allowed to withdraw the full amount, provided the account is a minimum of 10 years’ old

Partial withdrawal

  • Partial withdrawal from Tier-I NPS account is permitted in specific circumstances as mentioned below:
  • Higher education of children
  • Child’s wedding
  • Purchase or construction of a plot or property
  • Expenses towards skill development activities
  • Establishing a start-up
  • Critical illnesses that may include cancer, kidney failure, organ transplant, etc.
  • Medical or any incidental costs incurred by the subscriber due to incapacitation or disability suffered by him/her
  • The NPS withdrawal rules 2020 include Coronavirus under the ambit of critical illnesses and now allows partial withdrawal towards its treatment for the subscriber and his/her family
  • Withdrawal is normally allowed only if the NPS account is at least 3 years old. The only exemption to this rule being expenses incurred towards meeting skilling/re-skilling and self-development purposes
  • The subscriber is allowed to withdraw an amount of up to 25 percent of his/her contribution only
  • Such partial withdrawals are allowed only three times from the date of account subscription till the subscriber reaches the age of 60 years

Post maturity withdrawal

  • Once the subscriber attains the age of 60 years, he/she is allowed to withdraw up to 60 percent of the corpus amount without attracting any tax
  • The remaining 40 percent of the corpus must be used to buy an annuity to provide a monthly pension to the subscriber post-retirement
  • The monthly pension amount is taxable, depending on the slab rate of the investor
  • The NPS withdrawal rules for less than 2 lakh or corpus amount accumulated up to 2 lakh in NPS Tier-I account allow the subscriber to claim 100 percent withdrawal once he/she attains the age of 60 years

NPS withdrawal rules in case of death of subscriber

The NPS withdrawal rules in case of death of a subscriber allow the payment of the entire corpus accumulated to the deceased’s nominee(s)/legal heir.

The nominee(s) will need to furnish the following information along with duly filled withdrawal forms to claim the accumulated NPS corpus of the deceased subscriber:

  • Original PRAN card
  • Photo Identification proof and address proof for KYC purposes
  • Duly filled advanced stamped receipt, cross-signed by the claimant/nominee on the revenue stamp
  • Claimant’s bank proof in the form of a cancelled cheque/bank certificate/copy of bank passbook containing claimant’s photo and self-attested by the claimant
  • Original death certificate of the subscriber as issued by the Registrar of birth and death

In case of a nominee who is a minor, his/her guardian may, on the minor’s behalf, submit the withdrawal form along with the birth proof of the minor.

Conclusion

The NPS withdrawal process can be initiated both online and offline. The online withdrawal process can be initiated on any business day from the comforts of home. This can be done through the subscriber’s NPS online account, using the PRAN ID and password. For offline withdrawals, separate withdrawal forms need to be filled as per the type of withdrawal chosen.

T&C

 

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