National Pension System (NPS) Withdrawal Rules: NPS investment not just helps a subscriber in accumulating a retirement corpus but also in saving money paid as income tax.
National Pension System (NPS) Exit and Withdrawal Rules from Tier I, Tier II accounts: NPS investment not just helps a subscriber in accumulating a retirement corpus but also in claiming income tax deduction. The NPS allows additional tax benefits on saving of Rs 50,000 under Section CCD (1B) of Income Tax Act. This is over and above the deduction limit of Rs 1.5 lakh provided under Section 80 CCE of Income Tax Act 1961. Hence, an NPS subscriber can claim up to Rs 2 lakh as tax deduction. Two types of accounts are provided under NPS – Tier I and Tier II. While Tier I is mandatory for NPS subscribers, opening and operating Tier II account is optional. Both these accounts have different withdrawal rules which subscribers should be aware of.
According to an official PFRDA document, withdrawal from Tier I account is restricted and conditional. One can withdraw from NPS Tier I account only when he/she has met the exit conditions prescribed under the NPS. In contrast, Tier II account is a voluntary savings facility for subscribers. It works as an add-on to Tier I account. Withdrawal is also without restrictions from Tier II account for subscribers. They can do it whenever they want.
NPS creates pension wealth for subscribers by effectively investing their contributions over the long term. A subscriber, who joined between 18-60 years, can withdraw their accumulated pension wealth from the NPS in the following manner:
– On retirement at the age of 60, the subscribers need to buy an annuity with 40 per cent of the accumulated wealth. The remaining 60 per cent is paid as a lump sum. In case the total corpus is less than Rs 2 lakh, the subscriber can withdraw the entire amount.
– In case of death because of any reason: The entire pension corpus is paid to the nominee/legal heir of the subscriber. The nominee would have the option of purchasing the annuity of the total corpus.
National Pension System: Premature Exit
Exit before 60 years: In this case, 80 per ent of the pension corpus of the subscriber is mandatory to be used for purchase of an annuity, while the remaining 20 per cent is paid as a lump sum. In case the total corpus is less than 1 lakh, the subscriber can withdraw the entire corpus.
A PFRDA explainer dated 14-12-2018 had said that in case of disability/incapacitation of the subscriber, he/she would be allowed to withdraw up to 60 per cent of the corpus as lump sum and minimum 40 per cent should be used for purchase of annuity.
For NPS-Private Sector subscribers joining after 60 years
Normal Exit: Such subscribers can exit after completion of 3 years from the date of joining the NPS. They need to purchase annuity for 40 per cent of their accumulated pension wealth and withdraw the remaining as a lump sum. Full corpus can be withdrawn if it is less than Rs 2 lakh.
Premature exit: For subscribers joining after 60 years, exit before the completion of three years is considered to be premature exit. Such subscribers need to buy annuity for 80 per cent of their corpus and withdraw the remaining 20 per cent. If the corpus is smaller than Rs 1 lakh, then the full amount can be withdrawn.
In case of death: Entire amount is paid to nominee of the subscriber.