National Pension Scheme (NPS) is the retirement pension product introduced by the government for all resident individuals. It became a very famous product due to the additional tax benefit that one gets on making these investments.
The features of NPS and how should one invest in NPS is discussed in our Article. Here, we have listed when and how can you withdraw the money invested into NPS and how the same should be managed.
Basic Withdrawal Rules:
There are majorly 2 types of NPS
- NPS tier 1 – the contributions made in tier 1 NPS have restrictions on withdrawal.
- NPS tier 2 – it is more like a savings account, there is no restriction on withdrawal.
Tier-I comes with partial withdrawal options, subject to conditions.
- For those looking to exit before turning 60, there is an option to withdraw 20% of the accumulated savings but have to buy an annuity with the remaining 80%.
- When you attain the age of 60, you have to invest at least 40% in an annuity with IRDA and can withdraw only up to 60 percent of the corpus.
- The nominee can withdraw the full amount only after the death of the subscriber.
There are a few amendments which were made in the NPS withdrawal specifying the conditions where one can withdraw a part of their NPS balance and when.
You can withdraw 25% accumulated corpus
You are allowed to withdraw 25% of the accumulated corpus at any time (but excluding contributions made by the employer), as on the date of application of withdrawal.
There are a few conditions to do the same:
- The subscriber must be in the National Pension System for at least 3 years.
- The subscriber can withdraw a maximum of 25% of the contributions made by him and standing to his credit in his individual pension account, as on the date of the application for withdrawal.
- The subscriber is allowed to withdraw only a maximum of 3 times during the entire tenure of subscription.
- You must submit this withdrawal request in the specified form along with necessary documents to the central record keeping agency or the National Pension System Trust, as may be specified, for processing of such withdrawal claim.
- If subscriber suffering from diseases, then a family member can submit the application.
- For Tier II account, one can withdraw either partial or full amount available in this without any condition.
Purpose of withdrawal
You are not allowed to withdraw the NPS corpus as per your wish. There are certain purposes set by PFRDA. They are as below.
- For higher education of your children including a legally adopted child (or) for self.
- Individual NPS subscribers who wish to set up a new business or acquire a new business will also be allowed to make partial withdrawals from his contributions.
- For the marriage of your children, including a legally adopted child
- You can make a partial withdrawal for the purchase or construction of a residential house or flat in your name or in a joint name of your spouse. In case, you already own a residential house or flat (either individually or in the joint name), other than an ancestral property, no withdrawal under these regulations shall be permitted.
- If you /your spouse, children, including legally adopted child or dependent parents suffer from any specified illness, a partial withdrawal request can be submitted by you or any of your family members. (Specified illness – which shall comprise of hospitalization and treatment in respect of the following disease) :
- Kidney Failure (End Stage Renal Failure);
- Primary Pulmonary Arterial Hypertension;
- Multiple Sclerosis;
- Major Organ Transplant;
- Coronary Artery Bypass Graft;
- Aorta Graft Surgery;
- Heart Valve Surgery;
- Myocardial Infarction;
- Total blindness;
- An accident of serious/ life-threatening nature.
- Any other critical illness of a life-threatening nature as stipulated in the circulars, guidelines or notifications issued by the Authority from time to time.
- Such advance withdrawal will not attract any taxation. Hence, there is no tax liability for such advance withdrawal.
You can hold and contribute to NPS corpus even after your retirement up to the age of 70 Yrs.
Where you wish to continue to contribute to your NPS even after your retirement (i.e. age of 60 or after superannuation), you must give the same in writing in the prescribed form.
Such option can be exercised at least 15 days prior to the age of attaining 60 years or the age of superannuation, as the case may be to the central recordkeeping agency or the National Pension System Trust or any other intermediary or entity authorized by the Authority for the purpose.
If you not exercised the option within the period of 15 days, so stipulated, but desires to continue with his individual pension account under National Pension System, beyond the age of 60 years or the age of superannuation, as the case may be, and to the extent so permitted, may do so by making an application in writing with reasons for such delay to the National Pension System Trust, within 185 days of attaining such age or superannuation.
State and Central Government Employees NPS corpus may withhold the NPS withdrawal to recover any dues from an employee
If you are an employee of State or Central Government and if there any dues pending by you to be payable to your employer, then your employer may withhold the NPS withdrawal to recover such dues.
However, such authority is available only for Tier 1 accumulated corpus but not for Tier 2 accumulated corpus.
The pension wealth which is payable under the National Pension System will not be paid to the employer until the conclusion of the departmental or judicial proceedings, as the case may be and subject to the final orders, passed in such proceedings.
Who provides Annuity on withdrawal or maturity under NPS?
An annuity is a series of payments made at successive periods (intervals) of time. For NPS it is bought at withdrawal or on reaching 60 years in Tier 1 Account. ASPs would be responsible for delivering a regular monthly pension on exit from the NPS. The Annuity Service Providers empaneled by PFRDA for subscribers of NPS are as under:
- Life Insurance Corporation of India
- SBI Life Insurance Co. Ltd.
- ICICI Prudential Life Insurance Co. Ltd.
- Bajaj Allianz Life Insurance Co. Ltd.
- Star Union Dai-ichi Life Insurance Co. Ltd.
- Reliance Life Insurance Co. Ltd.
We have listed all the forms required for NPS withdrawal in our Article - Click here to read more.