There are no restrictions on withdrawal from the Tier-2 NPS Accounts, while there are restrictions on withdrawals from Tier-1 Accounts.
There are two types of accounts under the National Pension System (NPS) – Tier-1 and Tier-2. While there are no restrictions on withdrawal from the Tier-2 NPS Accounts, there are restrictions on Tier-1 Accounts.
Withdrawal during exit
Lump sum withdrawal up to 60 per cent of the retirement corpus is allowed at the time of superannuation or attainment of 60 years of age and the rest 40 per cent is to be used to purchase an annuity plan from any IRDAI-regulated insurance company.
However, in case of premature withdrawal, lump sum withdrawal of only 20 per cent of the retirement corpus is allowed, while the rest 80 per cent needs to be invested in an annuity plan.
In case of death of the subscriber and in case the value of the retirement corpus is less than or equal to Rs 5 lakh, 100 per cent lump sum withdrawal is allowed.
The subscribers of NPS Tier-1 Account may also make partial withdrawal up to 25 per cent of the contributions made by themselves – excluding employers contributions, if any – after 10 years from the date of joining in normal cases and after 3 years from the date of joining under some specific circumstances.
Partial withdrawals may be made for the reasons like –
a) Higher education of children
b) Marriage of children
c) Purchase or construction of a residential house or flat
d) Treatment of specified illnesses
Only a maximum of three partial withdrawals are allowed during the entire tenure of NPS subscription. The gap between two withdrawals should be at least five years, except in case of specified illnesses or in case of death of the subscriber.
While applying for withdrawal, a subscriber has to mention the percentage of withdrawal, purpose of withdrawal (along with prof) and bank account details (along with proof).
Penny drop process
To ensure that correct details of an active bank accounts are provided by the subscribers at the time of withdrawals, Central Recordkeeping Agency (CRA) KFintech (KCRA) has adopted the penny drop process. Under this, Re 1 is transferred to a subscriber’s registered bank account to check the transaction is completed successfully.
“In penny drop process, the bank account will be verified by making the ‘test transaction’ by dropping Re 1 in subscriber’s registered bank account. KFintech CRA (KCRA) will check if the bank details provided by the NPS subscriber is active and valid and the name in bank account is same as in PRAN. Once the User captures the withdrawal request, KCRA will check the details instantly. If there is success, User will be allowed to complete his/her withdrawal request. However, if the penny drop transaction fails or there is a mismatch in name, User will not be allowed to capture the withdrawal request. Subscriber has to provide the correct bank details to submit his/her withdrawal request,” said Sreekanth Nadella, CEO, KFin Technologies.
However, the penny drop will make withdrawals a bit expensive as the subscribers have to pay for the process.
“Penny drop is a chargeable transaction and charges are recovered from the subscriber’s NPS Account. KCRA is the first CRA to implement the penny drop process in Partial Withdrawal and Bank details updating process,” said Nadella.