What are the withdrawal rules in NPS Account

National Pension Scheme also known as National Pension System is a scheme backed the central government and comes under the regulations of the Pension Fund Regulatory and Development Authority (PFRDA) developed by the government. The scheme aims to ensure the financial security of the citizens of India after their retirement by formulating a systematic savings & investment plan which would hell to develop a corpus to meet the financial needs in the future.

Under the scheme, the individual has to make at least minimum specified contributions every month or in a year into the NPS Account and upon retirement, the individual receives the corpus partly by way of making a lump-sum withdrawal and purchasing an annuity of at least 40% of the corpus which will later make regular monthly payments to the annuity holder.

Withdrawal Rules of National Pension Scheme

There are two types of accounts in NPS i.e Tier-1 & Tier-2 and the following withdrawal rules applicable to them:

  1. Tier-1 Account: The tier-1 account is valid until the retirement of the individual. Pre-mature withdrawals(anytime before the retirement) from this account are allowed but subject to some conditions that are:
  • Withdrawals can only be made for meeting some specified financial requirements like for child’s education, buying a house, or for meeting medical needs.
  • Premature withdrawals are allowed only up to the extent of 25% of the total corpus is allowed after the 3 years of opening the account.
  • Also, withdrawals can be made for a maximum of 3 times that too each one after the gap of 5 years.

Withdrawals at maturity

For withdrawal of the corpus at the maturity, following are the conditions:

  • The individual cannot withdraw the entire corpus from the account i.e a lump-sum withdrawal of up to 60% of the total corpus is allowed as per the rules.
  • And rest of the amount i.e. a minimum of 40% of the corpus needs to be utilized to purchase an annuity scheme that would offer regular pension to the individual.

The withdrawals at the maturity as per the regulations are fully exempted from the tax i.e tax-free. However, the returns or income earned on the annuity scheme are taxable in the hands of the holder.

  1. Tier-2 Account: The tier-2 account is a voluntary contribution account just for the purpose of savings. This is a very liquid account and hence allows withdrawals at any time as per the individual’s needs. There is no lock-in period or limits on withdrawals here.
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