The National Pension Scheme (NPS) is a retirement savings scheme initiated by the Indian government. It is a voluntary contribution-based pension system that provides financial security to its subscribers during their retirement years. NPS offers two types of accounts: Tier I and Tier II. Tier I account is a mandatory account for all subscribers, while Tier II account is optional.
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| NPS Withdrawal Everything You Need to Know, NPS Rules, forms |
As an NPS subscriber, you are allowed to make partial withdrawals from your Tier I account before retirement. In this article, we will discuss the different types of NPS withdrawals, including partial withdrawal, withdrawal after death, and withdrawal after maturity.
NPS Partial Withdrawal from NPS Tier I Account
NPS allows you to make partial withdrawals from your Tier I account under certain circumstances. The maximum amount you can withdraw is 25% of your contributions, subject to a few conditions. To be eligible for partial withdrawal, you must have completed at least three years of subscription to the scheme.
Some of the eligible reasons for partial withdrawal from NPS Tier I account are:
- Higher education of your children
- Marriage of your children
- Treatment of critical illnesses for self, spouse, children, or dependent parents
- Purchase or construction of a residential house or flat
- Starting a new business or expanding an existing one
To make a partial withdrawal from your NPS Tier I account, you need to submit a withdrawal request form along with supporting documents. The request form can be downloaded from the NPS Trust website.
NPS Withdrawal after Death
In the event of the subscriber's death, the accumulated pension wealth is paid to the nominee or legal heir. The nominee has the option to receive the entire amount as a lump sum or as a regular pension. If the nominee chooses the pension option, the pension amount will be based on the accumulated corpus and the age of the nominee.
The nominee needs to submit a death certificate, along with an application form, to claim the pension amount. The application form can be downloaded from the NPS Trust website.
NPS Withdrawal after Maturity
Once the subscriber reaches the age of 60, he/she can withdraw up to 60% of the accumulated corpus as a lump sum. The remaining 40% must be used to purchase an annuity plan from a life insurance company. The annuity plan will provide a regular pension to the subscriber.
If the subscriber wants to defer the lump sum withdrawal, he/she can choose to defer the withdrawal for up to ten years after the age of 60. During this period, the accumulated corpus will continue to earn interest. The subscriber can choose to withdraw the lump sum at any time during the ten-year period.
NPS Tier II Account
NPS Tier II account is a voluntary savings account that allows subscribers to make unlimited withdrawals at any time. Unlike Tier I account, there are no restrictions on partial withdrawals or annuity purchases. However, the subscriber needs to maintain a minimum balance of Rs. 1,000 in the Tier II account.
To withdraw from the NPS Tier II account, the subscriber needs to submit a withdrawal request form along with supporting documents. The request form can be downloaded from the NPS Trust website.
Frequently Asked Questions (FAQs)
Q. Can I withdraw from NPS before the age of 60?
A. Yes, you can withdraw up to 25% of your contributions from your Tier I account after three years of subscription.
Q. Can I withdraw the entire corpus after the age of 60?
A. No, you can withdraw up to 60% of the corpus as a lump sum. The remaining 40% must be used to purchase an annuity plan.
Q: Can I withdraw the entire amount from my NPS account after maturity?
A: No, you cannot withdraw the entire amount from your NPS account after maturity. You are required to use at least 40% of the maturity amount to purchase an annuity plan from an insurance company. The remaining 60% can be withdrawn as a lump sum or in a phased manner over the next 10 years.
Q: Is there any limit on the number of partial withdrawals that can be made from an NPS account?
A: Yes, there is a limit on the number of partial withdrawals that can be made from an NPS Tier I account. You can make a maximum of three partial withdrawals during the entire tenure of the account, and there should be a gap of at least five years between two partial withdrawals. There is no such limit for partial withdrawals from an NPS Tier II account.
Q: What happens to the NPS account after the subscriber's death?
A: In case of the subscriber's death, the entire NPS account balance is paid to the nominee or legal heir. If there is no nominee or legal heir, the balance is paid to the legal representative of the subscriber's estate. The nominee or legal heir can choose to receive the entire amount as a lump sum or purchase an annuity plan with a part of the amount and receive the remaining amount as a lump sum.
Q: What is the tax treatment of NPS withdrawals?
A: The tax treatment of NPS withdrawals depends on the type of withdrawal. Partial withdrawals from NPS Tier I account are tax-free up to a limit of 25% of the subscriber's contributions. Lump sum withdrawals from NPS Tier I account after maturity are taxable as per the subscriber's income tax slab. Annuity payments received from the NPS account are taxable as per the subscriber's income tax slab. Withdrawals from NPS Tier II account are treated as capital gains and taxed accordingly.
Q: Can I make a partial withdrawal from my NPS account for medical treatment?
A: Yes, you can make a partial withdrawal from your NPS Tier I account for medical treatment of the subscriber, spouse, children, or dependent parents. The maximum amount that can be withdrawn for medical treatment is 25% of the subscriber's contributions. No documents are required to be submitted for the first withdrawal, but for subsequent withdrawals, documents supporting the medical treatment need to be submitted.
Q: Can I make a partial withdrawal from my NPS account for higher education of my children?
A: Yes, you can make a partial withdrawal from your NPS Tier I account for higher education of your children. The maximum amount that can be withdrawn for this purpose is 25% of the subscriber's contributions. The withdrawal can be made for up to two children, and the documents supporting the admission and fee payment need to be submitted.
Q: Can I make a partial withdrawal from my NPS account for purchase or construction of a house?
A: Yes, you can make a partial withdrawal from your NPS Tier I account for the purchase or construction of a house. The maximum amount that can be withdrawn for this purpose is 25% of the subscriber's contributions. The withdrawal can be made only once during the entire tenure of the account, and the documents supporting the purchase or construction need to be submitted.
Overall, NPS provides a flexible and tax-efficient investment option for retirement planning. With proper understanding of the withdrawal rules and procedures, subscribers can manage their finances effectively and meet their financial goals.
