NPS Withdrawal Online - Process, Rules & Taxation

What is NPS Withdrawal?

The National Pension Scheme (NPS) allows subscribers to withdraw their pension savings either partially or completely under specific circumstances. Withdrawal can happen at retirement, before retirement under voluntary exit, or due to unforeseen events like death or disability. Understanding NPS withdrawal rules helps you plan retirement finances smoothly and benefit from tax advantages.

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NPS Withdrawal Rules — Simple with Examples

1. Partial Withdrawal from NPS

• When allowed: After completing 3 years of active subscription to NPS.
• Withdrawal limit: Up to 25% of your own contribution (excluding returns and employer contribution).
• Permitted reasons: Higher education of children, marriage, home purchase or repair, medical emergencies, starting a business, or treatment of critical illness.
• Frequency limit: Maximum 3 partial withdrawals permitted during your entire NPS membership.
• Example:
  Suppose you contributed ₹4,00,000 from your pocket over the years. You can withdraw up to 25% of ₹4,00,000, i.e., ₹1,00,000, for approved reasons. You can avail this benefit thrice in your tenure, with at least 5 years gap between withdrawals except in medical emergencies.

2. Withdrawal on Retirement (At or After 60 Years)

• Allowed lump sum: Up to 60% of the accumulated pension corpus can be withdrawn as a lump sum, which is mostly tax-free under current laws.
• Annuity purchase: The remaining 40% must be compulsorily used to buy an annuity plan, which pays you regular pension income.
• Taxation: Annuity income (the regular pension received) is taxable according to your income tax slab.
• Example:
  If your total accumulated corpus is ₹10,00,000 at retirement, you can withdraw ₹6,00,000 as a lump sum tax-free. The remaining ₹4,00,000 will be used to buy an annuity that gives monthly pension, taxable as per your slab.

3. Voluntary Exit or Premature Withdrawal (Before 60 Years)

• Condition: You can exit after completing at least 10 years in NPS.

• Withdrawal rules:

  • If corpus is less than or equal to ₹2.5 lakh: You can withdraw the full corpus as lump sum.
  • If corpus is above ₹2.5 lakh: You can withdraw only 20% as lump sum, and 80% must be invested to buy an annuity.

• Taxation: The lump sum withdrawal is taxable as per your income tax slab, and pension received from annuity is also taxable.

• Example:
  You decide to exit after 12 years with a corpus of ₹5,00,000. You will get ₹1,00,000 (20%) as a lump sum, which is taxable, and ₹4,00,000 will be annuitized to give a monthly pension.

4. Withdrawal Rules After Maturity or Small-corpus Exception

• If the corpus is ₹5 lakh or less at retirement, 100% withdrawal is allowed without mandatory annuity purchase.
• This relaxes the annuity obligation to help small corpus subscribers access their funds fully.
• Example: If your total NPS corpus is ₹4,50,000 on retirement, you can withdraw the full amount lump sum.

5. Withdrawal in Case of Death of a Subscriber

• A full accumulated corpus is payable to the nominee or legal heir.
• For government employees with corpus exceeding ₹5 lakh, the nominee must use 80% of the corpus to buy annuity, and 20% can be taken as lump sum.
• If the corpus is below ₹5 lakh, the nominee gets 100% lump sum.
• Example: If a private-sector NPS subscriber passes away leaving ₹10,00,000, the nominee can withdraw the entire amount. For government employees, annuity rule applies for amounts above ₹5 lakh.

NPS Withdrawal Online Process

For Tier 1 Accounts:

1. Login to the official NPS portal (https://cra-nsdl.com/CRA/)
2. Go to “Withdrawal Requests” in your subscriber dashboard.
3. Select withdrawal type: Partial, Premature Exit, or Full Withdrawal.
4. Upload required documents—ID proof (Aadhaar, PAN), bank details, and purpose documents (for partial withdrawal).
5. Submit your request online.
6. The process generally completes in 7-10 working days; amount transfers to your registered bank account.

For Tier 2 Accounts:

• Submit form UOS-S12 with supporting KYC documents to nodal office/POP.
• Withdrawals can be made anytime.
• Processing is usually faster (around 3 working days).

Offline withdrawal is also possible by submitting the filled withdrawal forms to the nearest POP or nodal office.

Summary Table of NPS Withdrawal Rules with Examples

Scenario

When Allowed

Withdrawal Allowed

Tax Treatment

Example

Partial Withdrawal

After 3 years

Up to 25% of own contributions

Fully tax-free

₹4L contribution → ₹1L max allowed

At Retirement (≥ 60 yrs)

At 60 or retirement

60% lump sum (tax-free), 40% annuity

Annuity income taxable

₹10L corpus → ₹6L lump sum + ₹4L annuity

Voluntary Exit (< 60 yrs)

After 10 years

≤ ₹2.5L full lump sum; > ₹2.5L → 20% lump + 80% annuity

Lump sum & annuity taxable

₹5L corpus → ₹1L lump + ₹4L annuity

After Maturity/ Small corpus

At retirement

Full corpus if ≤ ₹5 lakh

Tax-free (if small corpus)

₹4.5L corpus → 100% withdrawal

Death of Subscriber

Anytime after death

Full corpus to nominee, annuity rules for govt sector

Depends on corpus size

Private sector: full corpus withdrawal

Tax Implications on NPS Withdrawal

• Lump sum withdrawal of up to 60% on retirement is fully tax exempt.
• Annuity income received from the remaining 40% corpus is taxable as per income tax slabs.
• Premature withdrawal before 60 years is taxable on the lump sum withdrawn.
• Partial withdrawals (up to 25%) after 3 years are also tax-free.
• Withdrawal from Tier 2 accounts is fully taxable as capital gains.

Section

Exemptions Ceiling

Section 80CCD (1)

₹1.5 Lakh – Available under overall tax exemptions in Section 80C.

Section 80CCD (2)

10% of salary (basic + DA) contributed by employer – Over and above Section 80CCD (1).

Section 80CCD (1b)

₹50,000 – Over and above Section 80CCD (1) and Section 80CCD (2).

• Contributions under these sections let individuals and employers enjoy additional tax benefits, reducing overall taxable income.
• Before initiating NPS withdrawal, individuals should check whether their NPS plan is Tier I or Tier II to follow the correct withdrawal procedure.

Conclusion

NPS withdrawal rules are designed to promote disciplined retirement planning while still offering flexibility for genuine needs like education, medical treatment, or emergencies. Whether it’s a partial withdrawal, an exit at retirement, or a claim in unforeseen situations, understanding the eligibility, limits, and tax implications ensures a smooth and stress-free experience.

Most withdrawal requests today can be completed online through the CRA (Protean/NSDL) portals, making the process faster and more transparent. Just keep your PRAN, bank details, Aadhaar, and PAN updated to avoid delays.

As you plan your retirement, remember that NPS works best when combined with strong long-term equity and debt investments. Pairing your NPS with Motilal Oswal’s research-backed stock recommendations and wealth-building strategies can help you grow your retirement corpus faster and stay financially prepared for the future.

A well-planned NPS exit today can shape a more confident and secure retirement tomorrow.