NPS Withdrawal Rules: Flexibility Before Age At 60, Partial and Premature Withdrawal Rules

National Pension Scheme (NPS) is widely considered to be one of the best options to save for retirement. Being a government backed initiative, it offers a safe way to invest. In the long run, your contributions can grow substantially, providing you with a substantial fund when you retire, along with a monthly pension.

However, many people hesitate to invest in NPS because they feel that they will not access their money till the age of 60. This misconception may deter potential investors, but it is important to know that early withdrawals are indeed possible under certain conditions. Let’s explore how it works.

Partial withdrawal

Once you open an NPS account, you can withdraw a portion of your contributions after three years. Specifically, you can access up to 25% of your total contributions under certain circumstances. The Pension Fund Regulatory and Development Authority (PFRDA) allows withdrawal for reasons such as:

Funding higher education for yourself or your children.
Paying for your own or your children’s weddings.
Buying a home If you don’t already own a home.
Medical treatment for serious conditions such as cancer, kidney problems or heart disease for you, your spouse or children.
You can make maximum three partial withdrawals during your NPS period, with a gap of at least five years between each withdrawal.

Premature withdrawal
If you need to access your money before age 60, you can do so after ten years of opening the account, but with certain conditions. In this case, you should use 80% of your total corpus to buy an annuity, which will provide you a monthly pension. You are allowed to withdraw the remaining 20% ​​as a lump sum.

This structure means that even if you withdraw early, a significant portion of your savings will still be directed towards providing you with a pension, which is the primary objective of NPS.

Withdrawal after death before 60 years
If the investor dies before reaching 60 years, his nominee or legal heir can withdraw the entire amount in the NPS account as a lump sum. In this situation, there is no need to purchase an annuity, allowing the family to receive the lump sum directly.

Tax implications
It is important to understand the tax rules related to withdrawals. Partial withdrawals (up to 25% of your corpus) are tax-free. However, if you decide to withdraw the entire amount before the stipulated time, 20% of that total amount is subject to tax. Keep in mind that only 20% can be withdrawn as a lump sum; The rest should be used to buy an annuity. The pension you get from that annuity will be taxed as per your income tax bracket.

In short, while NPS is designed to encourage retirement savings, PFRDA also provides flexibility to those who need access to their funds earlier. The key takeaway is that while early withdrawals are possible, the main focus of the plan remains on ensuring steady income during retirement.