Can You Withdraw From NPS Before 60? Here Are The Rules
The National Pension System ( NPS ) is a government-backed savings scheme designed to support post-retirement expenses. It provides long-term financial security with a sizable corpus for retirement and regular monthly income in the form of a pension. Due to its government affiliation, it is considered a safe investment option.
While many benefits come after the subscriber turns 60, it is possible to withdraw funds before that age. Some potential investors hesitate to invest in NPS, fearing that their money will be inaccessible if they need it before retirement. However, the NPS does allow withdrawals under specific conditions. Let's look at the key rules for accessing NPS funds before the age of 60.
While many benefits come after the subscriber turns 60, it is possible to withdraw funds before that age. Some potential investors hesitate to invest in NPS, fearing that their money will be inaccessible if they need it before retirement. However, the NPS does allow withdrawals under specific conditions. Let's look at the key rules for accessing NPS funds before the age of 60.
1. Partial Withdrawal
After three years of opening an NPS account, subscribers can make partial withdrawals of up to 25% of their total contributions. This does not include the employer's contribution. The Pension Fund Regulatory and Development Authority (PFRDA) permits these withdrawals under certain circumstances:
Higher education: Funds can be used for the higher education of the subscriber or their children.
Marriage: Money can be withdrawn for the subscriber’s or their children’s marriage.
Home purchase: If the subscriber does not own a house, funds can be withdrawn to purchase one.
Medical treatment: Withdrawals can be made for the treatment of serious medical conditions, such as cancer, kidney failure, or heart disease, for the subscriber, their spouse, or their children.
Home purchase: If the subscriber does not own a house, funds can be withdrawn to purchase one.
Medical treatment: Withdrawals can be made for the treatment of serious medical conditions, such as cancer, kidney failure, or heart disease, for the subscriber, their spouse, or their children.
Subscribers are allowed to make partial withdrawals up to three times during the NPS tenure, with a minimum gap of five years between withdrawals.
2. Premature Exit (Withdrawal Before Age 60)
If a subscriber needs to withdraw funds before the age of 60, they can do so after the account has been active for at least 10 years. However, there are certain conditions:
- 80% of the corpus must be used to purchase an annuity, which will provide a regular pension.
- 20% of the corpus can be withdrawn as a lump sum.
This means that subscribers who exit NPS early must use the majority of their savings to secure a steady pension, which is the primary goal of NPS.
3. Withdrawal in Case of Death Before 60
In the event of a subscriber’s death before reaching 60, their nominee or legal heir can withdraw the entire accumulated corpus in a lump sum. In this case, there is no requirement to purchase an annuity, allowing the family to access the entire fund at once.
4. Tax Implications on Withdrawal
Understanding the tax rules related to NPS withdrawals is essential:
- Partial withdrawals (up to 25% of the NPS corpus) are tax-free.
- Premature full withdrawal: If the subscriber withdraws the entire corpus before the stipulated time, 20% of the lump sum amount is taxable. Importantly, only 20% of the total fund can be withdrawn as a lump sum, while the rest must be used to purchase an annuity. The pension received from the annuity will be taxed based on the subscriber’s income tax slab.
The rules surrounding NPS withdrawals before the age of 60 are designed to provide flexibility in times of need while ensuring that the primary objective of retirement savings is maintained. The PFRDA has balanced the need for financial access with the goal of securing a stable post-retirement income for NPS subscribers.
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