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The National Pension System (NPS) was launched in 2004 by the central government to support the financing of retirement planning. Launched initially for government employees, it now has been expanded to all resident and non-resident individuals. While NPS contributions can be made till 70 years of age, NPS withdrawal rules are currently applicable to both premature withdrawals and withdrawal at superannuation i.e. maturity of NPS investments.
Read on to know the NPS withdrawal rules in 2022 that are applicable in case you want to withdraw your NPS Tier 1 and/or Tier 2 account balance prematurely or at superannuation.
Current Rules of NPS Withdrawal in 2022
NPS withdrawal rules in 2022 vary depending on whether you are investing in the All Citizens Model, Corporate Model or Government NPS. Here are the withdrawal rules for different NPS models in brief:
NPS Withdrawal Rules for Corporate and All Citizen’s Model on Superannuation:
NPS superannuation withdrawal rules are applicable when the corporate subscriber attains 60 years of age. Staying invested till superannuation ensures all NPS tax benefits are taken to the fullest. The below rules are applicable for NPS Tier 1 account balance withdrawal in such cases:
- The individual is required to invest a minimum of 40% of the fund in an annuity. They have the choice to withdraw the remaining amount as a lump sum.
- The NPS subscriber can also defer withdrawing the lumpsum and continue contribution until 70 years of age.
- A person can withdraw the full amount tax-free, if the accumulated balance in NPS Tier 1 account is below Rs. 2 lakh at the time superannuation.
Withdrawal Rules for Subscribers of Government NPS Scheme
Currently, enrollment in the National Pension System is mandatory for all central and state government employees apart from armed forces. Subscribers of government NPS scheme need to invest in NPS till retirement and have to follow the below withdrawal rules:
- The subscriber must invest at least 80% of the corpus in annuities at superannuation.
- The individual has the option to withdraw the entire amount as a lump sum if the accumulated NPS corpus is less than Rs. 1 lakh.
Withdrawal Rules in Case of the Death of NPS Subscriber
In the unfortunate event of the NPS subscriber’s death, the nominee or the legal heir is eligible to withdraw the entire accumulated corpus allowed irrespective of the size of the accumulated corpus.
NPS Withdrawal Rules for Corporate Employees Taking Voluntary Exit
Corporate NPS subscribers are allowed to withdraw the account balance if they decide to take voluntary exit such as through VRS (Voluntary Retirement Service) subject to the below criteria:
- The individual should stay a subscriber for 10 years to withdraw the amount.
- 80% of the amount can be used to buy an annuity plan.
- The full withdrawal is permitted if the accumulated corpus is less than Rs 2.5 lakh.
Partial NPS Withdrawal Rules
NPS Tier 1 account balance can be withdrawn in full only after the age of 60 at superannuation. However, partial withdrawals are allowed. Here are the NPS withdrawal rules for them:
- The subscriber is permitted to make withdrawals from the NPS account up to three times during their overall NPS investment tenure.
- The subscriber is required to keep an interval of five years between two consecutive partial withdrawals from NPS account. This rule can be waived off in case of medical emergencies.
- The subscriber is permitted to withdraw only up to 25% of their self-contribution into NPS Tier 1 account.
- The subscriber should stay invested in the scheme for at least three years to be eligible for partial withdrawal of NPS account balance.
- Partial withdrawal is permitted only for select circumstances. These special circumstances include funding higher education of children, house renovation, marriage expenses and/or medical emergencies.
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Withdrawal Rules of NPS in Case of Premature Account Closure
NPS withdrawal rules are different for Tier 1 and Tier 2 accounts in case a subscriber wants to exit prematurely. Below are the rules of withdrawal for the different accounts:
NPS Tier 1 Withdrawal Rules
Investors of NPS Tier 1 account can withdraw account balance before maturity only after staying invested for at least 5 years after account opening. For investors who have stayed invested for 10 years or longer, an amount up to Rs. 2.5 lakh can be withdrawn as a lump sum. If the amount withdrawn from NPS Tier 1 account exceeds Rs. 2.5 lakh, 80% has to be invested mandatorily invested in annuities, the remaining corpus can be withdrawn as a lump sum.
NPS Tier 2 Withdrawal Rules:
There are no NPS withdrawal rules for Tier 2, the amount can be completely withdrawn as a lump sum without any restrictions.
Potential Reasons for NPS Partial Withdrawal
A subscriber cannot withdraw from the NPS scheme before retirement. However, partial withdrawals under NPS are permitted under specific criteria. Here are the potential reasons for which NPS partial withdrawals are allowed in 2022:
1. Funding own or children’s marriage (including legally adopted child)
2. To funds dependent children’s higher education
3. Construction, purchase or renovation of self-owned house
4. To pay for skill development or self-development courses
5. To pay for treatment in case of specific critical illnesses such as:
- Cancer
- Kidney failure
- Primary Pulmonary Arterial Hypertension
- Multiple Sclerosis
- Major Organ Transplant
- Coronary Artery Bypass Graft
- Aorta Graft Surgery
- Heart Valve Surgery
- Stroke
- Myocardial Infarction
- Coma
- Total blindness
- Paralysis
- Life-threatening accident
- Any other life-threatening critical illness
- Cancer
- Kidney failure
- Primary Pulmonary Arterial Hypertension
- Multiple Sclerosis
- Major Organ Transplant
- Coronary Artery Bypass Graft
- Aorta Graft Surgery
- Heart Valve Surgery
- Stroke
- Myocardial Infarction
- Coma
- Total blindness
- Paralysis
- Life-threatening accident
- Any other life-threatening critical illness
NPS Withdrawal Rules at Superannuation
Here are the NPS withdrawal rules at maturity:
NPS Tier 1 Withdrawal Rules:
After reaching the age of 60, the subscriber can withdraw 60% amount as lump sum. The remaining can be used to buy an annuity. However, if the corpus is less than Rs. 2.5 lakh, full withdrawal is permitted.
NPS Tier 2 Withdrawal Rules:
There are no NPS withdrawal rules for Tier II accounts. A subscriber has the option to withdraw the full amount without restrictions.
Frequently Asked Questions (FAQs)
1. Are NPS withdrawal forms available online?
Yes, NPS withdrawal forms are available under the ‘Form’ Section on the NSDL website. There are three different forms available, including forms for partial withdrawal, superannuation, partial withdrawal, and death of the account holder.
2. How can you withdraw from your NPS account?
NPS subscribers are required to submit a claim form. The claim form can be submitted both offline and online. You can submit the claim form online on the NSDL website. To submit it offline, you can reach out to the nearest PoP office.
3. Can you set up multiple accounts in NPS?
No, you cannot set up multiple accounts in NPS. You can invest in NPS through only a single Tier I and Tier II account mapped to the same PRAN (Permanent Retirement Account Number). The main account is the Tier I account, designed for retirement planning. Tier II is an add-on account (optional) that provides additional benefits of investing. The major difference between the two accounts is of the lock-in period and withdrawal limits.
4. What are the documents required for withdrawal under the superannuation category?
The documents required for NPS withdrawal or exit under the superannuation category include the duly filled Superannuation withdrawal form, PRAN card, KYC documents, advanced stamped receipt, cancelled cheque, and Request Cum Undertaking form.
5. Can I continue with NPS Tier 2 account after complete withdrawal and closure of Tier 1 account?
No. On complete withdrawal from and closure of NPS Tier 1 account, the subscriber has to mandatorily close the Tier 2 account as well.
Sources:
https://npscra.nsdl.co.in/all-faq-withdrawal.php
https://www.hdfcbank.com/personal/resources/learning-centre/invest/nps-withdrawal-rules-in-india
https://npscra.nsdl.co.in/Faq_upon_death.php
https://www.etmoney.com/pension/nps-withdrawal
https://www.hdfcbank.com/personal/resources/learning-centre/invest/nps-withdrawal-rules-in-india
https://www.npscra.nsdl.co.in/download/Annexure_PFRDA_Circular_CRA_PO_RI_Master_2016_003.pdf
https://www.financialexpress.com/money/all-you-need-to-know-before-opening-national-pension-system-tier-2-account/2386186/
ARN No: Sept22/Bg/26