The National Pension System (NPS) is a popular government-backed savings scheme designed for retirement. It helps individuals accumulate a substantial fund over the years and ensures a steady pension after retirement. While the benefits of NPS are typically available after reaching the age of 60, many people are unaware that they can withdraw money before this age under specific conditions.
If you’re an NPS subscriber and worried about needing access to funds before 60, the good news is that withdrawals are possible. Here’s a simplified breakdown of the rules and conditions for withdrawing from NPS before retirement.
1. Partial Withdrawal After Three Years
If you have been contributing to NPS for at least three years, you are eligible for partial withdrawals. The rules allow you to withdraw up to 25% of your total contributions (excluding the employer’s contribution). However, these withdrawals are permitted only under specific circumstances:
- For Higher Education: You can withdraw funds for your children’s higher education expenses.
- For Marriage: The funds can be used to cover the marriage expenses of your children.
- To Buy a House: If you don’t own a home, you can withdraw money to purchase a house.
- For Medical Treatment: In case of serious medical issues such as cancer, heart disease, or kidney failure, you can withdraw funds for the treatment of yourself, your spouse, or your children.
Subscribers are allowed to make three partial withdrawals during their NPS tenure, with a gap of at least five years between each withdrawal. This gives flexibility to those who may need funds for important life events or emergencies.
2. Premature Exit: Withdrawing Before 60
In case you need to withdraw your entire NPS corpus before the age of 60, the system allows premature exit after 10 years of account opening. However, certain conditions apply to ensure that the pension component remains intact:
- 80% of the corpus must be used to purchase an annuity, which provides you with a regular monthly pension.
- 20% of the corpus can be withdrawn as a lump sum.
This structure ensures that even if you withdraw before 60, the core purpose of NPS — providing post-retirement income — is maintained. So, while you can access a portion of your savings, the majority is still used to generate a pension for the future.
3. Withdrawal on Death of the Subscriber
If an NPS subscriber passes away before reaching 60 years of age, the nominee or legal heir has the right to withdraw the entire accumulated corpus in one go. In such cases, there is no requirement to purchase an annuity. This ensures that the family of the deceased receives the full benefit of the savings without any conditions.
4. Tax Implications on Early Withdrawals
When withdrawing money from your NPS account before 60, it’s essential to understand the tax rules that apply:
- Partial Withdrawals (up to 25%): These withdrawals are tax-free. So, if you withdraw a portion of your contribution for education, marriage, medical treatment, or buying a house, it won’t attract any tax.
- Full Withdrawal Before 60: If you choose to exit NPS and withdraw the entire amount, 20% of the lump sum amount will be taxed. Note that only 20% of the corpus can be withdrawn as a lump sum, while the remaining 80% must be used to buy an annuity. The pension received from the annuity will be taxed according to your income tax slab at the time.
These tax regulations are designed to ensure that NPS serves its primary purpose of providing a reliable post-retirement income while also giving subscribers some flexibility in case of urgent needs.
NPS Flexibility: Meeting Financial Needs Before Retirement
The National Pension System has been designed with flexibility in mind, allowing subscribers to access their funds even before turning 60 when needed. Whether it’s for children’s education, medical emergencies, or other critical situations, NPS allows partial and premature withdrawals under specific conditions.
However, it’s important to remember that NPS is primarily aimed at securing your financial future post-retirement. While early withdrawals are possible, they come with conditions that ensure a portion of your funds remains invested to provide a steady pension later.
