In the previous two posts on NPS, we covered two questions about whether NPS provides assured returns and how some investors overestimate their tax benefits.
In this post, let’s understand the withdrawal rules as currently applicable to NPS.
NPS maturity typically takes place at 60 years of age. This is also called normal superannuation.
In case of normal superannuation or maturity,
- Minimum 40% of the corpus has to be converted into an Annuity.
- Upto 40% of the entire corpus can be withdrawn tax-free
- You can withdraw another 20% after paying tax.
Having said that, you can convert your entire NPS corpus into an annuity too. An annuity is treated as normal taxable income, taxed as per your income tax bracket.
Exception – If your total NPS corpus is less than Rs. 2 lakhs, you can withdraw the entire amount.
Important points to note about NPS withdrawal:
- You have the choice to defer the lump sum withdrawals from your NPS corpus till the age of 70 years.
- Withdraw upto 40% immediately without paying tax
- The other 20% can be withdrawn over the next 10 years specially in years when you have lower income and hence save on tax
- The purchase of Annuity (min 40% of the corpus) can also be deferred for upto 3 years.
- In case of death, 100% of the NPS corpus will be receivable by the nominee, without paying any taxes or converting into annuity.
Pre-mature exit from NPS
You can apply for a pre-mature exit, if you have maintained an NPS account for a minimum of 25 years.
In case of pre-mature exit, 80% of the corpus has to be converted into an annuity. Only 20% can be withdrawn in lump sum.
Exception: If your total corpus is less than Rs. 1 lakh, you can withdraw the entire amount.
Partial NPS Withdrawal
Partial withdrawals are allowed from NPS accounts provided
- you have maintained an account for at least 10 years
- you can withdraw a maximum of upto 25% of your contributions, that is the amount you invested and not the current value in the corpus.
Partial NPS withdrawal is allowed for
- Children’s education,
- Buying a house or its construction, or
- Treatment of specified illness.