NPS: Big news for NPS subscribers. The National Pension System (NPS) can be a confusing topic for many individuals, especially when it comes to the rules for withdrawing funds. One common query is whether members can withdraw all their NPS funds before turning 60.
Primarily, individuals in the private sector often opt for NPS to avail tax benefits. Although NPS is a government pension scheme, in the previous tax structure, investments up to Rs 50,000 in NPS were eligible for additional income tax exemption under Section 80CCD. As a result, there was a rise in NPS investments by 2025.
However, with the new tax regime increasing the income tax exemption threshold to Rs 12 lakh, many have transitioned from the old regime to the new one, leading to a decline in NPS contributions. This shift occurred because investments in NPS no longer qualify for additional income tax exemptions under the new regime. Consequently, many individuals are now looking to withdraw their NPS savings but face confusion due to unfamiliarity with the withdrawal regulations.
To address this, we will explain the process of premature NPS withdrawal, which can provide clarity on the withdrawal procedures. To exit NPS prematurely, individuals can request to withdraw all their funds within five minutes using their Aadhaar card. The total NPS deposit will then be credited to their account within 2-3 days.
Typically, NPS is viewed as a long-term retirement plan where funds are locked until the age of 60. This lock-in period sometimes deters people from investing in NPS due to concerns about accessing their money in emergencies. However, it is possible to withdraw NPS deposits before turning 60 by prematurely closing the account.
Let’s simplify the rules for premature closure of the NPS account and understand the limits regarding fund withdrawals:
What is the limit for withdrawing 100% of funds prematurely?
Premature withdrawal of the entire NPS balance is subject to clear regulations set by the Pension Fund Regulatory and Development Authority (PFRDA). There are two scenarios for withdrawing 100% of funds:
– If the total NPS balance, including interest, is Rs 250,000 or less at the time of exit, you can withdraw the entire amount without the need to purchase a pension plan.
– If the total exceeds Rs 2.5 lakh, you must invest a minimum of 80% in an annuity plan, which will provide a monthly pension. The remaining 20% can be withdrawn as cash.
There is a common misconception regarding the Rs 5 lakh limit for premature withdrawals. In reality, this limit applies to normal exits after reaching 60 years of age. For premature closures, the limit stands at Rs 2.5 lakh.
What is the timeline for fund disbursement and what is the application process?
Currently, the NPS withdrawal process is entirely digital, paperless, and swift. Funds are typically credited to the bank account within three working days of the withdrawal request.
Here’s how to apply online
1. Log in to your CRA (Protean) portal or app using your PRAN and password.
2. Navigate to Manage Your Withdrawal, proceed to Exit from NPS, and select Initiate Request.
3. Choose the ‘Premature Exit’ option from the dropdown menu.
4. Fill in the required details accurately, upload essential documents such as PAN card, Aadhaar card, and scanned cancelled check/passbook, and verify the application using the OTP received on your registered mobile number or Aadhaar e-Sign before submission.