Launched by the Government of India in 2004, the National Pension System or NPS is a defined contribution pension scheme. It was started after the government’s decision to stop defined-benefit pensions.
NPS is governed by the Pension Fund Regulatory and Development Authority (PFRDA). It is available to every individual between the ages of 18 and 65 years.
Currently, there are 8 pension fund managers –
Nonetheless, there are several restrictions and conditions to NPS withdrawal rules that account holders should know of.
These rules are mentioned below –
Partial withdrawal from NPS is only available for the treatment of specified illnesses, the purchase or construction of a house, children’s weddings, and children’s higher education.
Rules for partial withdrawal are –
For example, if a subscriber’s contribution amounts to Rs.5 Lakh at the time of withdrawal, then he/she will be eligible to withdraw Rs.1.25 Lakh.
NPS withdrawal rules in case of retirement are detailed below –
Mr A has retired and plans to withdraw from his NPS account. The accumulated corpus in his account is Rs.25 Lakh. According to requisite NPS withdrawal rules, he will be able to withdraw Rs.15 Lakh (60% of Rs.25 Lakh). The remaining Rs.10 Lakh will be used to purchase an annuity.
It should be noted here that the fund that can be withdrawn (60% of the total corpus) will be exempt from taxation. However, the annuity, when received, will be taxable every year as per the income tax slab the subscriber belongs to.
National Pension System subscribers can voluntarily exit this scheme before the completion of their tenure. The rules in such cases are –
Mr. B plans to prematurely exit from NPS at the age of 40. He has Rs.15 Lakh in his account. Now, as per the NPS withdrawal rules, he will be able to withdraw only Rs.3 Lakh (20% of Rs.15 Lakh). The remaining Rs.12 Lakh will be used to purchase an annuity.
It should be noted here that both the withdrawn amount and the annuity will be taxable. The corpus withdrawn will be added to the subscriber’s income and taxed as per the income tax slab he/she belongs to.
On the other hand, the annuity will be taxable when it is paid. The amount used to purchase the annuity, from 80%, will be taxed each year as per the subscriber’s income tax slab.
As per the new rules, the maximum age to subscribe to NPS is 70 now. It has been changed from 65. The exit limit is 75 years now.
Existing NPS subscribers have the choice to invest beyond 60 years. On the other hand, their NPS account is extended to the age of 70 years.
Moreover, the updated rules permit to stay for an extended period to generate a higher corpus. Post maturity, an individual can defer the purchase of an annuity/withdrawal of any amount of NPS for up to 3 years from the time he/she turns 60 years of age or reaches superannuation age, whichever is earlier.
When an individual withdraws the amount of corpus, the same rules tend to apply as in the case of retirement. In simple words, this means an individual can withdraw 60% of the corpus (at maximum). On the other hand, the remaining 40% will be used for purchasing an annuity plan.
In case an NPS subscriber unfortunately dies, the legal nominee/heir can withdraw the complete corpus of the deceased subscriber in the case of private sector employees. Note for government employees, it is compulsory to purchase an annuity plan.
The process to withdraw from an NPS account is different for Tier 1 and Tier 2 accounts. The details for the same are mentioned below –
Online Method –
The steps for NPS withdrawal online from a Tier 1 account are mentioned below –
A form will be generated, which subscribers have to submit to the nodal office along with the following documents –
Offline Method –
Subscribers have to download relevant forms for withdrawal (partial withdrawal, exit, or retirement), fill them with relevant details, and attach it with the supporting documents mentioned above. They have to submit these forms at the nearest Point of Presence Service Provider (PoP/PoP- SP).
Tier 2 withdrawal can only be carried out offline through a PoP-SP. To do the same, subscribers have to fill out a UOS-S12 form and attach it with the supporting documents. The PoP will initiate the withdrawal request and disburse the amount within 3 days.
Income tax benefits on the National Payment System are available under the following sections –
|Section 80CCD (1)
|Rs.1.5 Lakh –
Available under the overall tax exemptions offered under Section 80C.
|Section 80CCD (2)
|10% of salary (basic + DA) contributed by the employer –
Over and above Section 80CCD (1).
|Section 80CCD (1b)
|Rs. 50,000 –
Over and above Section 80CCD (1) and Section 80CCD (2).
Thus, before initiating the withdrawal, individuals should ascertain whether their NPS plan is a Tier I or Tier II one to follow the correct procedure.