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The National Pension System (NPS) has emerged as one of the most reliable tools for retirement planning among Indian citizens. Supported by the Government of India, NPS allows individuals to invest systematically during their working years and build a retirement corpus with added tax benefits. But one common question investors have is, “How does NPS withdrawal work?” Let’s find the answer to this question in this blog.
NPS Withdrawal Rules
NPS has specific guidelines regarding how much you can withdraw at maturity or in special situations:
- At Retirement (60 years of age): You can withdraw up to 60% of your corpus as a lump sum. The remaining 40% must be used to purchase an annuity, which ensures a regular pension after retirement. The lump sum withdrawal is completely tax-free, while the pension received from the annuity is taxable.
- Premature Exit (before 60 years): This is allowed only after completing 10 years in NPS. In such cases, only 20% of the corpus can be withdrawn, and the remaining 80% must go into an annuity plan.
- Partial Withdrawal: NPS allows partial withdrawals up to 25% of the subscriber’s contributions. This can be done for specific purposes like higher education of children, medical treatment, marriage, or buying/constructing a house. A maximum of 3 partial withdrawals is allowed during the entire tenure.
NPS Withdrawal Process
The NPS withdrawal process has become simpler with digital facilities. You can submit a withdrawal request either online or offline by completing the NPS withdrawal form and submitting it to the nodal office/POP (Point of Presence).
For Online Withdrawal:
- Log in to your NPS account on the KFintech NPS portal.
- Fill out the withdrawal request and upload the required documents like ID proof, bank account details, and a photograph.
- Choose the lump sum and annuity proportion as per the rules.
- Submit the request online for processing.
For Offline Withdrawal:
- Download the NPS withdrawal form from the official PFRDA website.
- Submit the duly filled form along with the necessary documents to your POP or nodal office.
- Once verified, the request is processed, and the withdrawal amount is credited.
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NPS Withdrawal Conditions & Limits
The NPS withdrawal limit depends on the type of exit:
- Up to 60% at maturity (fully tax-free).
- Up to 20% in case of premature exit.
- Up to 25% for partial withdrawals under permitted conditions.
- Annuity purchase is compulsory in all cases except when the corpus is very small (below ₹2.5 lakh at retirement or ₹1 lakh in case of premature exit).
Final Thoughts
The NPS withdrawal process is designed to ensure that subscribers not only get a lump sum benefit but also a steady flow of pension post-retirement. While the rules might seem restrictive, they encourage disciplined retirement planning. Before making a withdrawal, assess your needs and understand the NPS withdrawal conditions thoroughly. A well-planned exit ensures that you maximize both your lump sum benefit and long-term pension security.
