National Pension System: How and how much you can partially withdraw from your NPS corpus

Partial withdrawal from the National Pension System (NPS) account has been made possible by the Pension Fund Regulatory and Development Authority (PFRDA) through an online process also. Industry experts, however, suggest one should not be encouraged to withdraw from the retirement fund unless there is an emergency.

Even though partial withdrawal is possible, account holders can make a partial withdrawal from their NPS fund only after they have completed 3 years. Additionally, there is also a limit to how much can be withdrawn. A subscriber can withdraw up to 25 per cent of their own contributions. For instance, if you have invested Rs 6 lakh in your NPS account, you will only be able to withdraw Rs 1.5 lakh, which is 25 per cent of your own contributions.

Earlier NPS did not allow partial withdrawals, but now partial withdrawals can be made but only for specific purposes, such as for child’s marriage or education, illness or disability, purchase of a property, etc. Also, keep in mind that there are limits on the number of times partial withdrawals can be made. Only 3 partial withdrawals in the overall tenure of an account can be made.

Further, between two withdrawals there must be a gap of 5 years. However, if the withdrawal is being made for the treatment of a specified illness, then this condition of a gap does not apply.

How to make a withdrawal from your NPS account?

To make a withdrawal, the account holder is not needed to submit an application at a nodal office or point of presence, with documents substantiating the reasons for partial withdrawal. In the online application instead, the account holder can just make a self-declaration, and the money will get transferred into their bank account on the 5th day.

Tax treatment of NPS withdrawal amount

Industry experts say partial withdrawal is tax-exempt. However, if you exit your NPS account prematurely, that is before 60 years of age, the tax treatment will be different. In that case, you will be allowed to withdraw only up to 20 per cent of your corpus as a lump sum, while the balance 80 per cent will have to be annualised.

Keep in mind, even though the lump-sum amount will be exempted from tax, income from the annuity will be added to your income and taxed at the slab rate.