SOURCE : NEW18 NEWS
Last Updated:April 22, 2025, 09:28 IST
Investing in NPS has always been a double-benefit deal, it helps build a retirement corpus while also offering tax exemptions. However, there are certain limitations on withdrawing funds before retirement
If you’ve opened an NPS account or are currently investing in it, it’s important to understand the rules and limits before planning a withdrawal. (News18 Hindi)
Investing in the National Pension Scheme (NPS) has always been considered a double-benefit option. On one hand, it helps build a retirement corpus, and on the other, it offers tax exemptions on investments. In the Budget presented in February, the government increased the income tax exemption limit to Rs 12 lakh. This has raised questions among investors using options like NPS to save tax, such as, can they now withdraw their money?
Under NPS rules, there are limitations on withdrawing funds before retirement. So, does this mean that money can only be withdrawn from an NPS account after retirement? And if there’s a financial need in between, what is the permissible withdrawal limit?
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If you’ve opened an NPS account or are currently investing in it, it’s important to understand the rules and limits before planning a withdrawal.
Understanding the NPS Account
If you’re considering withdrawing money from NPS, it’s essential to understand how the account works. There are two types of accounts under NPS: Tier-1 and Tier- 2
To open a Tier-2 account, you must first hold a Tier-1 account. Funds cannot be transferred from Tier-1 to Tier-2, although money can be transferred from Tier-2 to Tier-
From a Tier-1 account, up to 75% of your investment can be allocated to equity and 5% to Alternative Investment Funds (AIF). In a Tier-2 account, you may invest up to 100% in equity and 5% in AIF.
When And How Much Money Can Be Withdrawn?
The Tier-1 account is the primary NPS account, from which pension benefits are paid after retirement. At retirement, 60% of the amount can be withdrawn, while the remaining 40% must be used to purchase an annuity. This entire amount is tax-free. However, if the total corpus in the Tier-1 account (including interest) is less than Rs 5 lakh, the full amount can be withdrawn without needing to buy an annuity.
Conditions For Withdrawal Before Retirement
Death: If an NPS subscriber from the private sector passes away before reaching the age of 60, the nominee or legal heir can withdraw 100% of the amount. Purchasing an annuity is optional. However, if the subscriber was a government employee, it becomes mandatory for the nominee or heir to buy an annuity.
Partial Withdrawal: After completing three years from the date of opening a Tier-1 account, partial withdrawals are allowed for specific purposes such as medical treatment, disability, higher education, marriage, property purchase, or starting a business. Only three partial withdrawals are permitted during the account’s lifetime, with a minimum gap of five years between each withdrawal.
Premature Exit: If you wish to exit NPS before turning 60, you may do so after five years of opening the account. In such cases, only 20% of the corpus can be withdrawn, while 80% must be used to purchase an annuity. However, if the total corpus is less than Rs 2.5 lakh, there is no compulsion to buy an annuity.
